Parent–subsidiary corporate structures represent a fundamental organizational model in modern business practice. This model enables capital consolidation, centralized control, and strategic coordination across affiliated entities. The following document provides an English translation of the provided Vietnamese text, using appropriate legal terminology and professional academic structure. The translation also includes an introduction and conclusion as requested.
- Definition of Parent Company and Subsidiary
The terms “parent company” and “subsidiary” may be examined from multiple perspectives, including academic, economic, and legal viewpoints. Generally, a parent company is an enterprise that owns part or all of the equity capital of another company. In other words, the parent company is the owner of the subsidiary. A subsidiary, conversely, is a company whose equity is partly or wholly owned by another company, referred to as the parent company.
Across jurisdictions and industry sectors, the definition of parent and subsidiary companies may vary depending on the legal system’s conditions and principles. However, these definitions must always reflect the underlying economic and financial substance of the parent–subsidiary model—namely, the parent company’s financial investment in the subsidiary, which grants it ownership rights, shareholder status, or membership interests, along with certain controlling rights over the subsidiary.
- Legal Provisions Governing Parent–Subsidiary Relationships
Vietnamese law has gradually developed a legal framework governing the parent–subsidiary corporate model. The terminology “parent company” and “subsidiary” first appeared in the Law on Enterprises 1999, subsequently adopted in the Law on Enterprises 2005, and further improved in the Laws on Enterprises 2014 and 2020.
Currently, Clause 1 Article 195 of the Law on Enterprises 2020, as amended in 2025, provides that:
“ A company is considered the parent company of another company if it falls within any of the following circumstances:
– It owns more than 50% of the charter capital or the total number of ordinary shares of such company;
– It has the direct or indirect right to decide the appointment of the majority or all members of the Board of Directors, the Director, or the General Director of such company;
– It has the right to decide amendments to or supplementation of the charter of such a company.”
- Roles of the Parent–Subsidiary Relationship
The parent–subsidiary structure is a prevalent corporate organizational form that generates substantial benefits for both the parent company and the subsidiary:
For the Parent Company:
– Growth and expansion: A parent company can easily enter new markets and diversify its products or services through the establishment of subsidiaries.
– Resource optimization: Sharing financial, human, and technological resources among affiliated companies reduces operational costs and improves efficiency.
– Risk mitigation: By distributing investments across multiple subsidiaries, the parent company can minimize business risks.
– Enhanced competitiveness: The scale and diversity of subsidiaries strengthen the parent company’s competitive position.
– Control and management: Parent companies can direct and supervise subsidiary operations to ensure consistency and efficiency across the corporate group.
For the Subsidiary:
– Access to resources: Subsidiaries benefit from the parent company’s capital, technology, managerial expertise, and other resources.
– Enhanced credibility: Association with a reputable parent company increases the subsidiary’s market credibility.
– Development support: Parent companies may offer training, consulting, and marketing support to help subsidiaries grow.
– Risk sharing: Subsidiaries share a portion of business risks with the parent company.
For the Economy:
– Economic growth: Large corporate groups contribute significantly to GDP, job creation, and economic development.
– Innovation: The parent–subsidiary structure facilitates the exchange of ideas, promoting innovation and the development of new products and services.
– Enhanced national competitiveness: Multinational corporate groups can help increase the competitiveness of the national economy in the global market.
- Legal Relationship Between Parent Companies and Subsidiaries
Rights, Obligations, and Responsibilities of Parent Companies: Article 196 of the Law on Enterprises 2020, as amended in 2025, provides the rights, obligations, and responsibilities of parent companies toward subsidiaries. Accordingly:
– Depending on the legal form of the subsidiary, the parent company exercises its rights and obligations as a member, owner, or shareholder in accordance with the Law on Enterprises and relevant laws.
– Contracts, transactions, and other relations between the parent company and subsidiaries must be established and implemented independently and equally, consistent with the principles applicable to separate legal entities.
– If the parent company intervenes beyond its authority as an owner, member, or shareholder and compels a subsidiary to engage in business activities contrary to normal business practices or non-profitable activities without reasonable compensation—causing damage to the subsidiary—the parent company must bear liability for such damage.
– Managers of the parent company who intervene and compel the subsidiary to conduct such activities are jointly liable with the parent company for resulting damages.
– If the parent company fails to compensate the subsidiary, creditors or members/shareholders owning at least 1% of the subsidiary’s charter capital may, in their own name or on behalf of the subsidiary, request compensation from the parent company.
– If such compelled activities generate benefits for another subsidiary under the same parent company, the benefiting subsidiary must jointly reimburse the damaged subsidiary for the benefits received.
Restrictions in the Parent–Subsidiary Relationship
– Subsidiaries are prohibited from investing in or acquiring shares of their parent company.
– Subsidiaries of the same parent company may not cross-own each other through simultaneous capital contributions or share acquisitions.
– Subsidiaries of a parent company that is at least 65% state-owned may not jointly contribute capital or acquire shares in another enterprise, nor establish new enterprises under the Law on Enterprises 2020.
In conclusion, the parent–subsidiary model plays a significant role in corporate governance, market expansion, and economic development. Vietnamese law has established a clear regulatory framework that both enables corporate growth and safeguards against abuses of control. Understanding the rights, obligations, and limitations associated with this structure is essential for ensuring lawful, efficient, and sustainable business operations across corporate groups.
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