Establishment of a subsidiary company

According to Clause 1, Article 195 of Law on Enterprises 2020, the parent companies and the subsidiaries are regulated as follows:

“A company is considered parent company of another company if:

1. a) It holds more than 50% of charter capital or total ordinary shares of the latter;
2. b) 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
3. c) It has the right to decide revisions to the latter’s charter.”

Note: A subsidiary company must not contribute capital to or purchase shares of the parent company. Subsidiary companies of the same parent company must not contribute capital to or purchase shares of each other to establish cross ownership. Subsidiary companies of the same parent company with at least 65% state capital must not contribute capital to or purchase shares of other enterprises or to establish new enterprises as prescribed by Law on enterprises 2020.

Legal basis

• Law on Enterprises 2020
• Law on Investment 2020
• The relevant agreement on free trade.
• Commitment in WTO.
• Decree No. 122/2020/ND-CP dated October 15, 2020, on single-window cooperation in processing applications for registration of enterprises, branches, representative offices; employee declaration; social insurance participant number; use of invoices by enterprises

Rights, obligations, and responsibilities of the parent company to its subsidiary companies (Article 196 of Law on Enterprises 2020)

Depending on the type of the subsidiary company, the parent company shall perform its rights and obligations as its member, owner, or shareholder following corresponding regulations of this Law and relevant laws.

All contracts, transactions, and relationships between the parent company and the subsidiary company shall be established and executed independently and equally under conditions applied to independent legal entities.

In case the parent company makes intervention beyond the power of the owner, member, or shareholder and forces the subsidiary company to operate against its ordinary business practice or do non-profit activities without paying compensation in the relevant fiscal year and thus causes damage to the subsidiary company, the parent company shall be responsible for such damage.

The executive of the parent company shall be responsible for its intervention mentioned in Clause 3 of Article 196 of Law on Enterprises 2020 and shall be jointly responsible for the damage caused together with the parent company.

In case the parent company fails to pay damages as prescribed in Clause 3 of Article 196 of Law on Enterprises 2020, the creditor, member, or shareholder that holds at least 01% of the subsidiary company’s charter capital is entitled to, in their names or the subsidiary company’s name, request the parent company to pay damages.

In case the intervention mentioned in Clause 3 of Article 196 of Law on Enterprises 2020 is beneficial to another subsidiary company of the same parent company, that subsidiary company and the parent company shall jointly provide the benefit for the subsidiary company that suffers damage.

Procedures for establishment of a subsidiary company

To operate under the model of parent company - subsidiary, usually, the parent company will appoint a representative and contribute capital to establish a subsidiary.

According to Decree 122/2020/ND-CP and Decision 1523/QD-BKHDT, the procedure for the establishment of a subsidiary is carried out in the same way as the procedure for registration of establishment of a new enterprise corresponding to the following types:

• Joint-stock companies
• Singel-member limited liability companies
• Multi-member limited liability companies

Note: The enterprise establishment dossier must show that the parent company is a shareholder/capital contributing member owning more than 50% of the total number of ordinary shares or charter capital.

- Application for registration of establishment of a subsidiary company;

- Decision to establish a subsidiary of the parent company;

- Minutes of the meeting on the establishment of a subsidiary of the parent company;

- Notice of establishment of a subsidiary of the parent company;

- Draft charter of the subsidiary company;

- A list of members together with a copy of the identity card, passport, or other lawful personal identification of each member, applicable in the case of establishing a subsidiary as a limited liability company with 2 or more members or a public company joint-stock company.

- A written certification of legal capital issued by a competent agency or organization, for companies engaged in business lines that require legal capital as prescribed by law.

- Practicing certificates of members of the company and other individuals, for companies engaged in business lines and professions that are required by law to have a practicing certificate.

The sequence of execution

Step 1: Submitting

- Option 1: Apply directly to the one-stop department at the Business Registration Office of the Department of Planning and Investment where the enterprise's head office is located.

- Option 2: Register online at the National Business Registration Portal with a public digital signature or use a business registration account (Hanoi and Ho Chi Minh City must register via network).

Step 2: Receiving and processing the application

Step 3: Get the result

When receiving the results, the legal representative brings a receipt for handling the application; if not the legal representative, the authorized person must bring the power of attorney and submit a valid copy of one of the following papers:

- For Vietnamese citizens: valid CCCD/IDs/Vietnamese passports.

- For foreigners: Foreign passports or valid documents replacing foreign passports are still valid.

Duration: 03 working days from the date of receipt of complete dossiers.

The above is the establishment of a subsidiary company in HNLAW & PARTNERS Law Firm. If the business still has problems, unknowns, or needs other legal assistance, please contact the online legal consulting department through the hotline: 0912.918.296 for answers. We hope to receive the cooperation of customers!

For more details, please contact Hnlaw & Partners Law Firm

Address: DBS Tower, No.N028, lot 31 Hà Trì residential and commercial service area, Hà Trì ward, Hà Đông district, Ha Noi.

Hotline: 0912.918.296

Email: tuvan.hnlaw@gmail.com