From January 01, 2021, what are the responsibilities of the parent company towards its subsidiary?

From January 01, 2021, what is the responsibility of the parent company to the subsidiary? - Illustrative photo

To be specific: Article 196 Enterprise Law 2020 stipulates the rights, obligations, and responsibilities of the parent company to the subsidiary as follows:

- Depending on the legal form of the subsidiary, the parent company exercises its rights and obligations as a member, owner, or shareholder in relation to the subsidiary according to the respective provisions of this Law and other relevant laws.- Contracts, transactions, and other relationships between the parent company and the subsidiary must be established and implemented independently and equally under conditions applicable to independent legal entities.- In case the parent company intervenes beyond the authority of the owner, member, or shareholder and forces the subsidiary to engage in business activities contrary to normal business practices or engages in non-profitable activities without reasonable compensation in the relevant financial year, causing damage to the subsidiary, the parent company shall be liable for such damages.- The manager of the parent company responsible for the intervention forcing the subsidiary to engage in business activities as stipulated in Clause 3 of this Article must jointly with the parent company bear the liability for the damages.- In cases where the parent company does not compensate the subsidiary in certain cases prescribed by law, creditors or members, shareholders holding at least 01% of the subsidiary's charter capital have the right to request the parent company to compensate the subsidiary for the damages either in their own name or on behalf of the subsidiary.- In cases where the parent company intervenes beyond the authority of the owner, member, or shareholder and forces the subsidiary to engage in business activities contrary to normal business practices that bring benefits to another subsidiary of the same parent company, the benefited subsidiary must jointly with the parent company reimburse the such benefits to the damaged subsidiary.

For detailed content, see Enterprise Law 2020, effective January 01, 2021.

Le Vy

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