Subsidiary or division - pros and cons?

Subsidiary or division - pros and cons?

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Existing manufacturing business is currently a subsidiary of a large plc, and is in the chemical industry. The chemicals are sold via distributors to the public for home use, therefore there may be a chance of historical public/product liability claims going forwards.
Helen Thornley

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By AnonymousUser
08th Mar 2006 14:08

subsidiary looks a better option
Hi Helen

In this scenario, a subsidiary look like a better option.

The main reason is liability. Not only regarding the acquisition and past liabilities surfacing, but also with regard to future claims. Manufacturing anything these days is problematic enough, add chemicals into the mix and the public liability and environmental liability can be a significant risk factor.

Secondly, if you keep it separate, its easier to sell in the future. Not only will you (potentially) make a capital gains saving from the sale of shares, rather than a business or asset sale, but the process will be quicker and cleaner than trying to unpick the contracts, business and assets out of a larger business structure.

Happy to discuss further.

Best regards
Ray


Ray Levy
Levy & Co, Solicitors
020 7993 8052
[email protected]

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By AnonymousUser
07th Mar 2006 15:19

Warranties and indemnities

If you have a good solicitor on your side then the warranties and indemnities should afford adequate protection from ongoing claims re items that arose before your acquisition. If you are buying from a large plc then you really shouldn't try to economise on the legal side. They will undoubtedly have a good solicitor on their side and you would be foolish not to have one of equal calibre. Then he can answer the question that you have posted here.

A division is more manageable than a subsidiary in terms of organisation, paperwork etc. There is no reason why it can't have its own bookkeeping systems, bank statements, fixed asset registers etc whilst remaining part of the same company.

You also need to consider the possibility of your whole empire being dragged down by a claim against the new business arising after your acquisition.

Take legal advice on this.

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