Meaning Of A Subsidiary Agreement

The broader definition of „subsidiary“ applies to the accounting rules of the Companies Act, 2006, while the definition of „subsidiary“ is used for general purposes. [18] The Court of Appeal held in Enviroco Ltd v. Farstad Supply A/S [2009] EWCA Civ 1399 that where shares of a subsidiary have been mortgaged by the holding company to a bank and registered as collateral for pledging in the name of a bank, the subsidiary is no longer considered a „subsidiary“ within the meaning of sections 736 and 736A of the Companies Act 1985. One of the possibilities of controlling a subsidiary is obtained through the holding by the parent company of shares in the subsidiary. Each subsidiary has its own employer identification number and can pay its own taxes depending on the type of activity. Descriptions of the company`s major structures often use the terms „first-stage subsidiary“, „second-level subsidiary“, „third-level subsidiary“, etc., to describe several levels of subsidiaries. A first-level subsidiary refers to a subsidiary of the main parent company[note 1][9], while a second-level subsidiary is a subsidiary of a first-level subsidiary: a „granddaughter“ of the main parent company. [10] Therefore, a third-stage subsidiary is a subsidiary of a second-tier subsidiary, a „great-granddaughter“ of the lead parent company. The Companies Act 2006 contains two definitions: one of „subsidiary“ and the other of „subsidiaries“. Note that, in the context of the contract between the parties, the contractual definition of the subsidiary takes precedence over a legal definition. In other words, using the same terminology, a draft treaty may well intend to apply a different approach. So don`t try to correct the other party`s lawyer when constructing a concept that is also defined differently by current law (unless you want to impose another standard within the scope of the contract). The key question is generally whether a lower level of „control“ over the operations of the other party can allow that company to benefit or not from the agreement (or, conversely, whether „uncontrolled“ companies are subject to contractual restrictions within a party`s group structure).

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