Recently, I had an eye-opening conversation with a prospective client—a US citizen residing in Costa Rica. Together with her friend, who runs a thriving e-commerce business in Mexico, they shared a common goal: accessing the lucrative US market.
Here's where things got exciting: Instead of starting a completely new company, I proposed a different strategy. I recommended they consider establishing a US subsidiary for the Mexican company.
They thought about this idea and talked about it with their accountant. They decided a subsidiary would be a game-changer for their business.
Why? Let me share four powerful reasons why companies opt for subsidiaries:
1. Branding - companies can use subsidiaries to have separate brand identities, or position part of the business as an alternative to the parent company at a different price point.
2. Limited liability - as long as corporate formalities between the parent and the subsidiary are respected, a parent could use a subsidiary as a liability shield for its assets, because the reach of creditors is limited to only the subsidiary that signed the contract.
3. Financial reasons - for example, having the ability to sell an unprofitable subsidiary without disrupting the parent company's business or offsetting profits from one part of the business with the losses in another.
4. Operational reasons, like having separate management structures, managing certain assets or functions separately from the main enterprise, doing business in another country, or owning unique intellectual property.
Subsidiaries are the power tools that empower businesses to reach new heights.
But first: consult with a knowledgeable accountant.
Embracing subsidiaries could be just the ticket to make your business soar!