Modern business organizations operate globally and leverage a large number of registered legal entities, and operate through complex matrix relationships. To stay competitive in the current global business environment, they must often develop highly diverse and complex organizational structures that cross international borders. Learn more about Legal Entities and their importance for businesses.
In a rapidly changing national and global business environment, it has become necessary that corporate entities are organized in tune with the emerging economic trends, enable good corporate governance, and enable protection of the interests of the investors and other stakeholders. Further, due to the continuous increase in the complexities of business operation, the forms of corporate organizations are constantly changing.
This section provides an overview of some of the most commonly used legal forms and structures by corporate organizations across the globe along with a brief discussion of related laws, rules, procedures, and regulations that need compliance. How a company structures its long-term operations in a foreign country, effectively defines how it will be taxed hence the choice could have a significant potential effect on the profitability.
Regulations prevalent in most of the countries generally allow foreign entities to choose classification as a corporation (subsidiary), partnership, unincorporated branches; Limited Liability Companies (LLCs), distributor and manufacturer representatives, and joint ventures. Each choice has its own implications and complications. Generally, corporates operate as a separate legal entity with limited liability. Typical business models of foreign corporations conducting business activities in other countries involve wholly-owned Subsidiaries, Joint Ventures, Representative Offices, or Foreign Branches.
A legal entity is an artificial person having separate legal standing in the eyes of law. Some of the attributes associated with a legal entity are:
Subsidiaries are a common feature of business life, and all multinational corporations organize their operations in this way. Examples include holding companies such as Berkshire Hathaway, Time Warner, or Citigroup; as well as more focused companies such as IBM or Xerox. These, and other MNCs, organize their businesses into national and functional subsidiaries, often with multiple levels of subsidiaries.
A subsidiary is a company that is completely or partly owned by another corporation that owns more than half of the subsidiary's stock, and which normally acts as a holding corporation which at least partly or wholly controls the activities and policies of the daughter corporation. The controlling entity is called its parent company, parent, or holding company.
A subsidiary may itself have subsidiaries, and these, in turn, may have subsidiaries of their own. A parent and all its subsidiaries together are called a "group", although this term can also apply to cooperate companies and their subsidiaries with varying degrees of shared ownership.
Subsidiaries are separate, distinct legal entities for the purposes of taxation, regulation, and liability. For this reason, they differ from divisions, which are businesses fully integrated within the main company, and not legally or otherwise distinct from it.
For the purposes of liability, taxation, and regulation, subsidiaries are distinct legal entities. A subsidiary can sue and be sued separately from its parent and its obligations will not normally be the obligations of its parent. If a parent company owns a foreign subsidiary, the company under which the subsidiary is incorporated must follow the laws of the country where the subsidiary operates, and the parent company still carries the foreign subsidiary's financials on its books (consolidated financial statements).
GL - Different Accounting Methods
The accounting method refers to the rules a company follows in reporting revenues and expenses. Understand the two common systems of bookkeeping, single, and double-entry accounting systems. Learners will also understand the two most common accounting methods; cash and accrual methods of accounting and the advantages and disadvantages of using them.
An allocation is a process of shifting overhead costs to cost objects, using a rational basis of allotment. Understand what is the meaning of allocation in the accounting context and how defining mass allocations simplifies the process of allocating overheads to various accounting segments. Explore types of allocations and see some practical examples of mass allocations in real business situations.
Legal Structures for Multinational Companies
A multinational company generally has offices and/or factories in different countries and a centralized head office where they coordinate global management. A multinational company (MNC)is a corporate organization that owns or controls the production of goods or services in at least one country other than its home country.
Shared Services is the centralization of service offering at one part of an organization or group sharing funding and resourcing. The providing department effectively becomes an internal service provider. The key is the idea of 'sharing' within an organization or group.
GL - Review & Approve Journals
Review and Approval mechanisms ensure that the accounting transaction is reasonable, necessary, and comply with applicable policies. Understand why we need review and approval processes, what are they, and how they are performed in automated general ledger systems. Learn the benefits of having journal approval mechanisms in place.
What Is a General Ledger? General Ledger (also known in accounting as the GL or the Nominal Ledger) is at the heart of any accounting system. A general ledger is the master set of accounts that summarize all transactions occurring within an entity. Ledger is the skillful grouping and presentation of the Journal entries. Learn the accounting fundamentals, general ledger process, and general ledger flow.
Functional Organizational Structures
A functional organizational structure is a structure that consists of activities such as coordination, supervision and task allocation. The organizational structure determines how the organization performs or operates. The term organizational structure refers to how the people in an organization are grouped and to whom they report.
Network Organizational Structures
The newest, and most divergent, team structure is commonly known as a Network Structure (also called "lean" structure) has central, core functions that operate the strategic business. It outsources or subcontracts non-core functions. When an organization needs to control other organizations or agencies whose participation is essential to the success, a network structure is organized.
In this article, we explain some commonly used subsidiary ledgers like accounts receivable subsidiary ledger, accounts payable subsidiary ledger or creditors' subsidiary ledger, inventory subsidiary ledger, fixed assets subsidiary ledger, projects subsidiary ledger, work in progress subsidiary ledger, and cash receipts or payments subsidiary ledger.
Funds contributed by owners in any business are different from all other types of funds. Equity is the residual value of the business enterprise that belongs to the owners or shareholders. The funds contributed by outsiders other than owners that are payable to them in the future. Liabilities are generally classified as Short Term (Current) and Long Term Liabilities. Current liabilities are debts payable within one year.
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