Sometimes companies decide to do business in the form of a business group instead of individual, distinct companies. A business group is a corporate structure where the parent company, either alone or together with the companies in the same group, holds managerial or decision-making power in one or more companies. Such power is typically achieved when the company holds more than 50 percent of the votes in another company.
A group structure may offer certain benefits for example in terms of levelling operational risks: the parent company as a rule is not responsible for any obligations or duties of its subsidiaries. Subsidiaries may also, under certain conditions, be divested exempt from tax.
If the owners own the parent company, but the actual business operations are carried out in the subsidiaries, it may feel that their yields are out of the owners’ reach. In such cases, the system of group contributions and advance dividends can help in transferring the subsidiary’s profits to the parent company during the fiscal year, where they can further be distributed to the shareholders.
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