# Subsidiary

> A subsidiary is a separate company owned or controlled by a parent company and registered in its own jurisdiction, giving the parent a legal entity through which it can employ people, sign contracts and trade directly in that country.

A subsidiary is a company that is owned or controlled by another company, the parent, and registered as a legal entity in its own country. Setting one up gives a business a permanent, locally recognised presence, so it can employ staff directly, open bank accounts, sign contracts and trade in that market under its own name.

In law, a subsidiary is a separate legal person from its parent. That separation is what generally limits the parent's liability to what it has invested, and it means the subsidiary carries its own tax registration, directors and filing obligations.

A subsidiary is the usual route for larger or long-term operations in a country. It is also the main alternative to using an Employer of Record. An EOR lets you employ people quickly without your own entity, whereas a subsidiary is a bigger commitment that tends to make sense once headcount and permanence justify the cost.

## What can a company do with a subsidiary that it cannot do without one?

A subsidiary gives a company its own legal entity in a country, so it can employ people directly, hold a local bank account, sign contracts and invoice under its own name, and build a lasting presence. Without an entity, a business normally cannot employ staff locally in a compliant way, which is where an EOR often steps in.

## How does a subsidiary compare with using an EOR?

A subsidiary is a long-term structure you own, with full control but real setup and running costs, including registration, directors, tax filings and ongoing compliance. An Employer of Record lets you employ people in a country within weeks and without your own entity. Many companies start with an EOR, then form a subsidiary once the market and headcount justify it.

## Does a subsidiary protect the parent company from liability?

Generally, yes. Because a subsidiary is a separate legal person, the parent's exposure is usually limited to what it has invested, rather than the subsidiary's debts as a whole. This separation is a long-standing principle of company law, though courts can look behind it in specific cases such as fraud or serious wrongdoing.

## Key facts

- **A subsidiary is a separate legal person:** The principle that a company is a legal person distinct from its owners was settled in the UK by Salomon v A Salomon and Co Ltd [1897] AC 22, the basis for limited liability and the separation between a parent and its subsidiary. (Source: Wikipedia, verified 2026-07-28)

## Subsidiary vs EOR

|  | Subsidiary | EOR |
| --- | --- | --- |
| Setup time | Months to register and set up | Often weeks |
| Legal employer | Your own local entity | The EOR |
| Upfront and ongoing cost | Registration, directors, filings, compliance | A per-employee service fee |
| Best for | Larger, long-term local operations | Testing a market or hiring a few people |

## Frequently asked questions

### What is the difference between a subsidiary and a branch?

A subsidiary is a separate legal company owned by the parent, with its own liability, tax registration and filings. A branch is an extension of the parent in another country, not a separate legal person, so the parent is more directly exposed to its liabilities. A subsidiary offers more separation, but usually more setup and administration.

### When should I set up a subsidiary instead of using an EOR?

A subsidiary tends to make sense once you have a settled, growing team in a country and the ongoing cost of running an entity is justified by scale. Before that point, an Employer of Record often lets you hire and test the market faster, without the time and expense of forming a company.

### How long does it take to set up a subsidiary?

It varies widely by country, but registering a subsidiary and getting it ready to employ people usually takes months rather than weeks, once tax registration, bank accounts, directors and local filings are in place. This lead time is one reason companies often use an Employer of Record to start hiring while an entity is being set up.

## Sources

- [Salomon v A Salomon & Co Ltd](https://en.wikipedia.org/wiki/Salomon_v_A_Salomon_%26_Co_Ltd), Wikipedia

_Last updated 2026-07-28. Reviewed by Teamed's in-house employment-law team. Source: https://www.teamed.global/glossary/subsidiary_