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Should Subsidiaries Be Separately Registered As Companies?

Needs Business Consultants And Professionals Who Have Answer To This:

If one wants to set up a corporation with different divisions(subsidiaries),

does he have to register the divisions as individual companies (LLC)?

For instance, he calls the corporation "eXels Technologies (GROUP)" with the following divisions: eXels Network, eXels Electronics, eXels Multimedia etc

He wants each of the divisions to be independent of the others.

Now, the question is:

- Does he have to register each division as a Limited Liability Company (ie eXels Networks Ltd, eXels Electronics Ltd etc)

- Or should he register the Group as say eXels Technolgies Ltd, and then register each division as a brand names.

Please let business consultants and professionals do justice to this.

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17 answers

I really want more info on Brand. As a matter of fact, what I want is to pursue some of the objects of my memorandum with a given brand name (not necessarily Ltd) - u get what I mean. Do I still need to go CAC or just coin i name and start using it. Pls throw more light on this

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If your question was based on registeration the this is the following facts:

Before you can have a "group of companies"

you first of all register at list 3 individual companies as LLC'S ( Limited Liability Company)

then register a fourth with the name 'Bleep group" and bind the other 3 companies as subsidiaries.

if you want more info on Brand aspect then indicate it so i can give you advice on that.

registering the names excel tech, excel multimedia, excel networs e.t.c have its own advantages and disadvantages.

NEVER BREAK THE RULES OF BRANDING

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Happy new year all!

I decided to revive this thread because I finally incorporated my company, Nov 2009.

What is the present tax implications for this new company in Naija.

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@poster, has the tax rate changed from 30% to 40%? Moreover i think most start up companies can be considered small hence the small business rate of 20% should be applicable.

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Thanks a lot, naija4ward and Onyema.

I think it is clearer to me now, but am also concerned about the Taxation issue.

Come to think of it o, Govt seems to be the biggest threat to entreprenuers and business owners in this country. We are talking about tax, what about Licence (NCC) etc. This whole thing demoralizes me any time I think of Starting a biz.

"I now know why many people would rather work and invest in other companies and businesses than starting their own"

Nevertheless, we shall keep pressing towards the mark.

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Hmmm, the role of government is to provide reasonable rules and regulations to maintain order.

Those who just take money from corporations and individuals are known as thieves, not government!

Anyway, the topic hasn't changed, so let's press on. I don't really understand how one will avoid paying triple tax as a shareholder in the holding company of a conglomerate whose subsidiaries are registered as separate companies. What exactly is the accountant going to do to prevent this from happening? Is it legal? Tell us, please!

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Seun, you are partly right from a layman's point of view. But the Accvountants of this world have devised ways and means to mitigate the tax implications. If the holding company owns the majority of the shares in the subsidiaries, there is what is called "consolidated accounts" by which exemptions and what not applies. The total tax payable to the government will still end up to be the same (if you have a good accountant).

As far as government and taxation is concerned it is important to remember Larry Ellison's quote "A corporation's primary goal is to make money. Government's role is to take a big chunk of that money and give it to others".

Cheers

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Well, irrespective of the drawbacks in runung the units as a group, my experience instructs me that incorporating seperate entity for the various units is preferable. In doing this, the holding company will have 100% equity in all the subsidiaries. Seperate incorpration will enhance effective management, limitation of liability etc. You may then register a trade mark in the name of the holding company, which all the subsidiaries will use in their respective trade, this will give the group a unifoed identity, so that you dont have to spend much money on advert.

On the tax implication as Seun querried, once they are seperate legal entities, they pay income tax separately. This would not implicate multiple taxation since income tax is payable on profit. And with appropriate tax planning machanisms, you will find out that you would come round the issue of taxes. For instance, you might structure the organisation in such a manner that the investments by the holding company in the subsidiaries would be in the form of loans with moratorium of up to 7 yrs and grace period of up to 2 yrs. This will make the interest paybale on the loan tax free. Ther so many ways you can structure the organisan's transactions to reduce the tax burden on both the holding company and the subsidiaries.

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I'm concerned about multiple taxation. It's bad enough that we have to

pay 40% corporate tax after which we pay another 25% personal income tax.

If subsidiaries are incorporated separately, what are the tax implications?

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Alternatively you can start as a group, as then creat each division when funds permit.

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Hi Canachy.

From my personal experience, YOU DO NOT need to incorporate separately. No law says that. However consider the following and then make up your mind:

ONE INCORPORATION - GROUP

1. Branding is easier,

2. Save fortune on stationeries

3. Unified marketing effort

4. Savings on financial resources (incorporation costs, accountants fees, software, etc)

5 Ease of staff recruitment and other admin costs

SEPARATE INCORPORATION

1. Ability to monitor each division's performance

2. Enhanced competitive spirit within the group

3. IF THE GOING GETS TOUGH FOR ONE DIVISION, YOU HAVE THE OPTION OF "AMPUTATING" (CLOSING DOWN THAT DIVISION) AND STILL STAY ALIVE.

4. God forbid, if anybody (employee, customers, government, etc) SUE you in a court of law you will be able to stand with other legs while the "sued division" cash flow is exhausted in legal fees.

5 Having a separate finance pot i.e. bank account for each division means the sick one (negative cashflow) will not be living on the "cash cow".

The decision at the end of the day is yours. The average cost of N60,000 (for N1million) incorporation may well be worth it from my own experience. For example to protect your "Bottom", you could have the group coy OWNS all the trading assets and have each subsidiaries borrow/lease those assets at a cost. In this life as a company owner or entrepreneur, you will be SUED at one time or the other, so also business prosper or business fail.

Feel free to email me at Naijaforward@yahoo.com if you need some more critical insights into group companies management.

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Please guys, what is the current tax rate in Nigeria

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Thanks man. Please, I would still like you to throw more light on this

Other experts are still invited to contribute to this.

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Canachy, I am also having same problem. Can you post your results after careful findings?

Thanks.

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@canachy, Please post whatever you find out on this forum ,i'm having the same kind of trouble with my business registration I'm being told i have to register each arms of the business separately , while i want to have it as part of a GROUP.

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the approach you take depends on how much money you have and how far you want to go with these companies,

However, registering them under one group is safe. You can now work on the brand identity if these individual compoanies to make them independent yet tied to the parent comnpany. For professional advice, you can call 08023712999. Ask for seun. He will either solve your problem or refer you to someone who can.

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Where are the Niaraland's Business gurus.

Please I need the solution to this puzzle, I hope you would'nt mind helping me out here.

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