Are you looking to grow your business beyond your country’s borders? Imagine opening a foreign subsidiary! You’ll have control over the activities of your operation, and the parent company will not be wholly liable in the unfortunate event there’s a legal dispute or mistake at the local level. In short, it’s all good. To find out more about opening a subsidiary in a foreign country, follow this guide!

 

Why open a subsidiary in a foreign country?

The decision to go abroad is yours to make. Choosing to do so depends on your aspirations and what stage your business is at.

Here are five reasons you might want to open a subsidiary in another country:

  1. To penetrate new markets more quickly
  2. To strengthen your presence in a foreign country
  3. To minimise financial risk
  4. To reduce taxation on the parent company
  5. To manage international growth

 

How do you open a subsidiary in a foreign country?

There are two ways to open your business abroad:

  1. Create a new company
  2. Take over an existing company

Let’s run through both options together and take a look at the pros and cons of each.

Option 1: create a new company

The most popular option for opening a subsidiary abroad is to start a new company. This means you need to define this operation’s corporate purpose – which defines the activity of the new company.

If the corporate purpose is the same as the parent company’s, creating your subsidiary will be done by the competent body. If this isn’t the case, an extraordinary EGM (Extraordinary General Meeting) should be planned to confirm or deny the opening of a new foreign subsidiary.

Next, choose the legal structure of the future subsidiary based on the legal options available in the foreign country.

Lastly, carry out the formalities for setting up a company in the foreign country you’ve chosen, such as, for example, the submission of bureaucratic documents to the competent authority for the effective creation of the subsidiary.

Option 2: take over an existing company

In this scenario, you need to be aware you can’t choose the legal status that most suits you, nor recruit the personnel of your choice. It comes pre-established with the company.

This means you’ll take over the organization in its own country with all the good and bad that goes with it. The advantage is that you’ll have a structure that’s directly operational on the market. The staff, customers, buildings: everything you need is already there.

How do you take over an existing company in a foreign country?

To start, you should buy capital shares in the foreign company. This means investing money to increase your capital in the company.

Naturally, this option isn’t risk-free. Foreign companies can have issues that aren’t obvious at first glance. So, you should ensure you have legal experts on site and ready to carry out an audit of the business in question. Your legal team should be well-placed to write statutes and articles of association (documents that specify the regulations for a company’s operations and defines the company’s purpose) for your new subsidiary.

 

Translating your articles of association: an essential step for a foreign subsidiary

So, did you choose to create a new venture from scratch? Or did you go for option two and take over a company?

In either case, you’ll need the articles of association for your subsidiary to be meticulously translated! To ensure this happens correctly you need a legal translator – an expert who can certify your translations with the authority of a governing body.

Why is it essential to translate the articles of association of your foreign subsidiary?

The subsidiary’s articles of association contain essential information for the branch to operate properly and meet all governmental regulations. They address areas such as:

  • Corporate status
  • Legal entity
  • Method of governance
  • Capital allocation
  • Method of transferring company shares
  • List of company decisions and managers etc.

This means a translation error in any of the above could be detrimental to getting your business off the ground or maintaining the success / reputation of the one you purchased. To find the right team of translators to meet your translation needs, trust TextMaster. We have an extensive network of highly qualified professional translators.


Here are a few other helpful resources on this topic you may find interesting!

Reduce taxation on the parent company
Professional translation for demanding lawyers
5 translation mistakes that can hurt your website
The quality guaranteed by TextMaster: more than words, a vocation


Internationalisation from A to Z

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