What you need to pay attention, opening a subsidiary

“There is attractive business proposal from a legal entity based on collaboration. My business is a subsidiary. What can be “traps”?” — Simon Levin, Kiev.

Meets Yuri goyda, a lawyer in private practice:

You need to understand the purpose of the partnership and depending on them to choose legal instruments. Your business can become a child only if his preliminary registration as a business entity (LLC, JSC, JSC, SP, etc.) and not as private entrepreneur (natural person-entrepreneur). The legal status of subsidiaries in the Ukrainian legislation is revealed in many respects contradictory. Thus, the classifier of organizational and legal forms of management defines a subsidiary as a company, the only founder of which is another entity.

However, article 63, 126 of the Economic code of Ukraine stipulates that in case of existence dependency of one enterprise from those of another enterprise shall be a subsidiary. The dependence is expressed in economic or managerial form of participation in the founding capital and/or management and can be simple or decisive. Simple — with the possibility of blocking decisions by the parent company. Deciding if between the enterprises of the relations of control-subordination due to the predominant participation of the controlling enterprise in the founding capital and/or management bodies of the subsidiary. The dependency should be indicated in the information of state registration.


  • To risk and win: why do people turn your life 180 degrees

So, acquiring the status of a subsidiary in the Ukrainian legal field, you actually lose control over the enterprise — provided that you do not have corporate rights in most of the parent company. But you can avoid the risk of loss of business, for example, dividing the corporate rights of your company into several parts and distributing them between you, your partner and affiliates in the ratio that comprehensively gives you the ability to maintain control over the enterprise. Or it could be a joint creation of the new enterprises in which you and partner will own corporate rights in a specified ratio (e.g., holding company). You can also go through registration of the economic contracts on more favourable reciprocal conditions, thus excluding corporate interference in your business.