The identification of the parent company and subsidiary company is an important requirement to determine the entity that must prepare the consolidated financial statements in accordance with the accounting regulations. The following Law Viet An would like to give the grounds to identify the parent company, subsidiary companies for businesses to further information.
Pursuant to the Law on Enterprise 2020, a company is considered the parent company of another company if it falls into one of the following cases:
- It holds more than 50% of charter capital or total ordinary shares of the latter;
- It has the right to directly or indirectly designate most or all of the members of the Board of Directors and Director/General Director of the latter; or
- It has the right to decide revisions to the latter’s charter.
In addition, Article 8 of Circular 202/2014/TT-BTC guiding the preparation and presentation of the consolidated financial statements also provides the grounds for determining the parent company by the right of control through domination of the financial statements. financial and operating policies so as to obtain benefits from the activities of this company, in particular:
The parent company has the right to govern the financial and operating policies in the following cases:
- Holding more than 50% of direct or indirect voting rights in the Subsidiary. In case there is a difference between the percentage of voting rights according to the Enterprise Registration Certificate and the percentage of voting rights calculated on the basis of the actual contributed capital, the voting right shall be determined according to the charter of the enterprise or the agreement between the companies. beside;
- Having the right to directly or indirectly appoint or remove the majority of the members of the Board of Directors, the Director or General Director of the subsidiary;
- Having the right to cast a majority of votes at meetings of the Board of Directors or equivalent management level;
- Having the right to decide on the amendment and supplementation of the charter of the subsidiary;
- Other investors agreed to give the parent company more than 50% of the voting rights;
- Has the power to govern the financial and operating policies by agreement.
If you have requested for more advice on issues related to the model of subsidiaries and parent company, please contact Viet An Law Firm for more specific and detailed advice on this issue.
