LegalVision’s Startup Manual is essential reading material for any startup founder looking to launch and grow a successful startup.<\/p>\n <\/div>\n \n\nDownload Now<\/a> <\/section>\n <\/div>\n\n\n\n\n In the above examples, each of the subsidiary companies has been wholly owned by a single parent company.<\/span><\/p>\n\n\n\n Additionally, a subsidiary can be owned by two or more companies (just as YouCo is owned by you and the other two shareholders) (see below).\u00a0<\/span><\/p>\n\n\n\n In the above structure chart, if YouCo decides to expand into Italy, to ring-fence the risk, you should incorporate ForeignCo S.p.A. Also, due to specific accounting considerations, you would assign OpCo 1 70% of the shares and OpCo 2 30%. In this case, both OpCos would be parent companies of ForeignCo. <\/span><\/p>\n\n\n\n Finally, there are instances where a subsidiary company is partly owned by a company that sits outside the group company. You tend to see this in large multinational public companies. <\/span><\/p>\n\n\n\n Company law in England imposes certain restrictions on the operations of group companies. These are described below.<\/span><\/p>\n\n\n\n A subsidiary cannot own shares in its holding company. For instance, if you tried to transfer shares in HoldCo Ltd to OpCo 1 Ltd, the law would not recognise the transaction. <\/span><\/p>\n\n\n\n YouCo may want to move certain assets across different group companies in practice. For instance, suppose YouCo identifies an opportunity to buy and sell land for the benefit of the business as a whole, then YouCo incorporates SubCo Ltd as the trading company for this business division. YouCo later determines that it wants to transfer a piece of land to OpCo 3. <\/span><\/p>\n\n\n\n As is often the case, you are a director on the board of SubCo and OpCo (and HoldCo).<\/span><\/p>\n\n\n\n Since the law requires that a director owes their duties to the individual company (and not the group), you must follow specific processes to transfer valuable assets between group companies:<\/span><\/p>\n\n\n\nVariations <\/span><\/h3>\n\n\n\n
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<\/figure>\n\n\n\nRestrictions on Group Companies <\/span><\/h2>\n\n\n\n
Membership in Holding Company <\/span><\/h3>\n\n\n\n
Substantial Property Transactions <\/span><\/h3>\n\n\n\n
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Group companies are two or more companies engaged in the same business or enterprise. <\/span><\/p>\n\n\n\n Usually, companies in a group company share resources and funnel profits to a single group of shareholders, though this is not always the case. <\/span><\/p>\n\n\n\n You will find that most medium-sized and large companies operate through group companies. This is because the principal benefit of group companies is that each company benefits from the legal concept of limited liability. None of the individual companies within the group is responsible for any other company\u2019s debts and obligations, aside from those obligations the group has expressly agreed to enter into.<\/span><\/p>\n\n\n\n Group companies can vary in complexity, but most group companies tend to have the same fundamental structure. The business\u2019 shareholders all own shares in an ultimate parent company \u2014 commonly called the holding company<\/a> (\u201cHoldCo\u201d). The parent company then holds the shares in each company engaged in the business’s operational activities. These operating companies (or \u201cOpCos\u201d) are the parent company’s subsidiaries.\u00a0<\/span><\/p>\n\n\n\n For example, suppose your company YouCo has a long-established business in manufacturing, and you want to expand into delivery and retail. To protect the value of the established business, you incorporate OpCo1 Ltd and OpCo 2 Ltd, which will operate the delivery and retail divisions. You then incorporate HoldCo to hold the shares in OpCo 2 and OpCo 3 and transfer the shares to you. <\/span><\/p>\n\n\n\n To the outside world, the entire business (YouCo) appears to act as a single entity, but legally, each is distinct. Provided there are no agreements stating otherwise, HoldCo is not responsible for the liabilities of any of the OpCos, nor is one OpCo responsible for the liabilities of the others. If the delivery operation (OpCo 2) does not work out, the rest of YouCo\u2019s assets are safe from OpCo 2\u2019s liabilities. <\/span><\/p>\n\n\n\n In the example given, HoldCo is the holding company for each of the OpCos because it owns all the shares in each of the companies. The legal definition of a holding company is any company that:<\/span><\/p>\n\n\n\n The other company is a subsidiary company. If the subsidiary itself is a holding company of another company, the subsidiary\u2019s parent company is also the parent company of the third company (see below). <\/span><\/p>\n\n\n\nGroup Companies Structure <\/span><\/h3>\n\n\n\n
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<\/figure>\n\n\n\nLegal Definitions<\/span><\/h3>\n\n\n\n
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