Case Study

Subsidiary & One-person Limited Liability

Company

Valen Nov.2012

Case for Discussion

Company B is a wholly-owned subsidiary of Company A.

Please answer the following T/F questions.

Question 1

When investing in Company B, Company A must pay the capital contributions in a lump sum.

Article 59, Section 1

The minimum amount of registered capital of a one-person limited liability company shall be RMB 100, 000 Yuan. The shareholder shall, in a lump sum, pay the capital contribution as specified in the articles of association.

Question 2

Company B cannot be a company limited by shares.

Article 58, Section 2

The term "one-person limited liability company" as mentioned in this Law refers to a limited liability company with only one natural person shareholder or a juridical person shareholder.

Question 3

Company B has an acting director and no board of directors.

Article 51, Section 1

As for a limited liability company with relatively less shareholders or a relatively small limited liability company, it may have an acting director and no board of directors. The acting director may concurrently hold the post of the company's manager.

Question 4

Company B can also establish a wholly-owned subsidiary.

Article 59, Section 2

One natural person is allowed to establish merely one one-person limited liability company which shall not set up any further one-person limited liability company.

Question 5

The property ownership of Company B belongs to Company A. But Company B enjoys the right to make use of its property independently.

Article 14, Section 2

The company may set up subsidiaries which enjoy the status of an enterprise juridical person and shall be independently bear civil liabilities.

Branch vs. Subsidiary

Legal Status Ways of Control Limited Liability

Branch subordinate direct NO

Subsidiary independent indirect YES

Branches are qualified subjects of litigation.

Thank You!