Managing operational issues with international subsidiaries

Managing the annual filings of your international subsidiaries can be a big pain if the local authorities in those jurisdictions have to be told (and have to give permission to) each and every thing that you did (or more likely) did not do with the company in your home jurisdiction.

If:

Your company want to change its name or merge with a company

because

You brought in a new investor, you merged with the competition or you simply wanted to move to a more tax efficient structure.

You MAY assume that there is no need to inform the local authorities in country X, Y, Z, because:

a) The identity of the owner entity did not change (tax ID/other government ID remained the same)

b) There was no change of control.

c) It was a merger so technically speaking the resulting entity has the same as the original entity.

AND

You may be right.

However you may not actually know that until:

You use up valuable time and money, providing all the details of your transaction (and the kitchen sink) to all possible governmental authorities in x, y, and z countries, each or all of which may demand that a) some documents be notarised, b) some be originals, and c) some be signed in person in the local office.

And all along you are burning time and money trying to figure out what the operational or regulatory penalties might be to getting, or not getting these approvals.

Because:

It was the parent company of the subsidiary that received the investment, or did the name change, or did the merger. And whatever you were doing in to the parent company in your home jurisdiction really had nothing to do with the small itsy-bitsy teeny sub you maintain in a particular country, on the off-change business takes off there.

The moral of the story/ answer to all the hassle is:

If you have international subsidiaries, for regular operational issues or for special events, to reduce local "gotchas," you should consider incorporating a company below your main holding company. 

That "blocker entity" doesn't have to be in another jurisdiction. It can be in your home jurisdiction. Then all the small changes you do with its parent may not be required to be communicated to all the subsidiary jurisdictional authorities. 

It is important to note that you may not always escape the hassle of the local regulatory filings. In many jurisdictions, to set up things like banking, you will have to give detailed information, all the way up to the identities of the shareholders etc., and the local rules may specify that major changes to "beneficial"shareholders need to be disclosed in a timely manner. 

But it is unlikely there will be ongoing shareholding disclosure requirements two entities up the holding structure and even if there are those sometimes, by having a blocker entity, within your own juridiction, some of the administrative obligations can be reduced.

So, to reduce hassle (and for other liability reasons that this blog post does not get into) this is what you should consider doing:

AS ALWAYS:

To discuss this more and for actual professional advice pertinent to your situation, ping me for a referral to a lawyer/accountant who can help you.