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Business owners need to always have an eye out for different business expansion possibilities. Some of these people may have envisioned opening up branches across the country, while others may focus on entering international markets.
Dozens of business owners choose to set up subsidiaries in Europe each year. This allows them to reap several benefits of operating a company in another country. In this guide, we will examine why you should consider setting up a subsidiary in Europe as well as how to complete the registration process for multiple subsidiaries.
What is a Subsidiary?
The term “subsidiary” generally refers to a daughter company that is owned or controlled by another company. This other company is referred to as the “parent” company that helped create the subsidiary.
For example, Meta is currently the parent company for subsidiaries such as Facebook and Instagram. Similarly, Alphabet Inc is the parent company of the subsidiary Google.
Differences Between a Branch and a Subsidiary
Some people may get confused between subsidiaries and branches. After all, both these entities were initially created by another company. However, they differ in key areas that could make one preferable over the other.
The most significant difference between a branch and a subsidiary is their ownership stake. A branch is 100% owned by the parent company, whereas a subsidiary’s ownership could be anywhere between 50% and 100%. Subsidiaries that are 100% owned by the parent company are called wholly-owned subsidiaries.
Operations and Activities
A branch company’s activities typically resemble that of the parent company. In a way, the branch is an extension of the parent company. Hence the name “branch”.
Subsidiaries, on the other hand, aren’t required to carry out the same activities as their parent company. This can be advantageous if the subsidiary is to be operated differently, presumably to achieve different goals or target different markets.
Branches are legally connected to their parent company. Therefore, the parent company is held legally responsible if a customer runs into an issue at one of its branches.
Subsidiaries, on the other hand, are considered separate legal entities. This means the parent company won’t be held responsible for any problems customers encounter with the subsidiary. This makes subsidiaries a good option for companies that would like to venture into markets that carry risks.
A branch’s liabilities are an extension of the parent company. For this reason, it’s not uncommon for branches to share joint accounts with their parent company.
Subsidiaries maintain separate finances along with separate bank accounts. This means the subsidiary’s liabilities do not extend back to the parent company. For this reason, a company may choose to set up a subsidiary rather than a branch when they are attempting to enter a risky market.
Dealing With Losses
Parent companies also treat branches and subsidiaries differently when they encounter losses. If a branch performs poorly, the parent can simply shut it down to avoid incurring any more losses.
If a subsidiary is underperforming, the parent company has the option of selling it off for a profit. This isn’t possible for branches as they are connected with the parent company.
How to Register Multiple Subsidiaries in Europe
The differences between branches and subsidiaries described above indicate that subsidiaries are generally the better choice if you’re interested in expanding business operations to multiple European countries.
These subsidiaries can operate in risky industries without having these risks impacting their parent company. This makes them the perfect choice for any company that wants to test the waters in Europe.
If you’re interested in setting up a European subsidiary, you should follow the steps described below.
Pick a Subsidiary Name
Before attempting to register your subsidiary, you must ensure you have chosen a name that is unique. Most European countries have laws prohibiting companies from using existing names. For this reason, you should look up the business name you have chosen in the country’s business name database.
For example, if you intend to set up your subsidiaries in France, you can look up the company name with the National institute of industrial property (Institut national de la propriété Industrielle (INPI).
Once you have confirmed that the subsidiary name is unique, you can proceed with the next step.
Choose a Business Address
Next, you must select a business address for your subsidiary. In most cases, this will be the address at your business’s office or headquarters will be located at. However, in some cases, you may be able to use a virtual address as the address for registering your business.
Many European countries, such as the United Kingdom, France, and Germany, permit you to use virtual offices, so this strategy may be useful if you don’t intend to set up a physical office space for your subsidiary.
Open a Commercial Bank Account
Next, you must open a commercial bank account for the subsidiary. This is necessary because the subsidiary’s finances will be separate from the parent company. Therefore, you cannot use the parent company’s bank account for the subsidiary’s activities.
You should spend some time learning about each bank and the business accounts they offer in the European country you have chosen. Once you find a suitable option, you should immediately open your commercial bank account with the bank.
It should be noted that banks in certain European countries require your business to be already registered to open bank accounts under them. In this case, you should delay this step until your business has been officially registered.
Notarize Your Articles of Association
The Articles of Association is a charter document that helps establish your subsidiary’s legal existence in your chosen European country. This document includes key information such as why you have chosen to set up the subsidiary, who will be managing it, where the head office’s address is, etc.
Once you have drafted your Articles of Association document, you must get it attested by a notary or “notarized”.
Publish the Registration
Next, you can fill out a business registration form and submit it to the appropriate authority. For example, if you intend to open your subsidiaries in France, you must publish your registration with the Official Gazettes.
You must then gather and submit the necessary documents to Centre de Formalities des Enterprise. This document list will also vary depending on the country you have chosen.
For France, you will need to provide information on the parent company obtained from the Trade Register in its home country. In addition to this, you will need to submit the notarized Articles of Association, a rental agreement that confirms the business’s address, and information on the parent company’s representative in France.
Apply for Licences and Permits
Now that the subsidiary has been officially registered, you must obtain the licences and permits necessary for your operations.
These licences and permits will vary depending on your business type. For example, if you intend to sell agricultural products in France, you must obtain a licence from the Rural Payments Agency.
Similarly, if you plan to import or export metals or textiles, you must obtain a licence from the Department of Business’s Import Licencing Branch.
You should ensure that you have obtained all the licences and permits required before attempting to operate your business. This is because doing so without the proper authorization may get your business fined or even shut down. For this reason, it’s essential to complete this step as your subsidiary’s registration is complete.
Considerations When Opening Multiple Subsidiaries in Europe
The steps mentioned above are for opening a single subsidiary in Europe. If you intend to open multiple European subsidiaries, you will need to perform some of these steps again.
For example, you won’t need to register the company name a second time because each subsidiary outlet will be operating under the original subsidiary’s name. However, you might need to obtain new licences and permits for each subsidiary you open up in a different city.
It is important to understand these considerations before opening up multiple subsidiaries. For this reason, it is wise to consult a professional when you are attempting to set up and register subsidiaries in Europe.
How OpenAEuropeanCompany Can Help
As you can see, the process of registering a subsidiary in Europe is slightly different from the process of registering a parent company. However, both registration processes can be equally confusing if you’re unfamiliar with them.
If you need help with registering multiple subsidiaries in Europe, please contact the professionals at OpenAEuropeanCompany. We understand the various challenges business owners face when attempting to set up subsidiaries in Europe and can streamline the registration process. We can setup several businesses at once throughout Europe.
Please get in touch with OpenAEuropeanCompany today and start your business operations in Europe with confidence.