Essay on Corporation and Subsidiary Company

1701 WordsSep 5, 20137 Pages
Individual research assignment Introduction The international company which called Buildco Ltd establishes a new company in Australia which is a wholly owned subsidiary of Buildco. The purpose of incorporating the subsidiary is to solve the problem of sourcing debt finance in the international marketplace. However, the property development project which is undertaken by Buildco and funded by Asset Pty Ltd is financially unviable. Consequently, the Buildco expects that the Asset could write-off the loan as a bad debt and claim a tax deduction. Nonetheless, the Commissioner of Tax disallows the deduction for the bad debt because of the significant degree in the overlap in the management of both companies and the very large degree of…show more content…
Indeed, agency relationship between the parent company and the subsidiary must be consistent with the following six questions: 1. Were the profits treated as the profits of the parent? Yes. In this view, the subsidiaries company (Asset Pty Ltd) will be treat all of the profits as a dividend to the parent company (Buildco Ltd). 2. Were the persons conducting the business appointed by the parent? Yes. In this present case, all decision are decided by the parent company (Buildco Ltd) and then implemented by the subsidiaries company (Asset Pty Ltd). 3. Was the parent the head and brain of the trading venture? Yes. The three directors of the subsidiaries company (Asset Pty Ltd) come from the board of parent company (Buildco Ltd). In other words, the directors should simultaneously manage the two companies. Namely, the directors overlap in management of both companies. 4. Did the parent govern the venture; decide what should be done and what capital should be used? Yes. During the board meeting, the directors of the parent company (Buildco Ltd) passed a resolution that allowed the subsidiaries company (Asset Pty Ltd) to implement a strategic. 5. Did the parent make the profits by its skill and direction? Yes. It is conspicuous to discover that the parent company (Buildco Ltd) was established in 1950, and become the one of the world’s leading international
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