What Is Owned Entity And Common Challenges

What is owned entity?

An owned entity refers to a legal business which is wholly owned or controlled by another entity. this can also refers to subsidiaries or divisions operating in foreign land that are owned or controlled by parent company and operates under their guidance. They conduct business activities in the host countries and follow all the rules and regulations, taxation set by the government. This also allow them to hire locally and provide business opportunity and increase talent.

Why do businesses consider establishing owned entities?

Business consider opting for owned entities for following reasons:

Legal and liability protection: Owing a separate entity provide legal and liability protection for the owners or parent company. If one entity faces any legal issues or bankruptcy it may not directly affect the other entities owned by the same company.
Tax Efficiency: Owing separate entities help in tax planning and optimization. Different entities have a different tax regulations and structuring ownership in a certain way can help minimize overall tax liabilities.
Operational flexibility: Having a separate entities can allow businesses to have a more focused management and operation for that specific country. Each entity can work independently formulating their own marketing plans, products and services, allowing for greater flexibility and efficiency in operations.
Risk Management: By having different entity at different places organization can minimize the risk. If one entity faces difficulties or fails then it may not directly impact the overall operation and financial health of the parent company.
Regulatory Compliance: Many a times company have to have a separate entities due to country regulatory requirement. Different industries and geographical location have specific regulation that the businesses need to follow and having a separate can help organization ensure compliance with the place.
Investment and financing: Having multiple entities can help facilitate investment and financial strategies. Each entity can raise capital independently allowing them to have more targeted investment opportunity and potentially better access at financing.
Strategic Expansion: having a separate entity can help business to enter new market and industries. by creating new entities business can come up with tailored strategies and structure to address specific market demand and opportunities.

Key challenges of registering an owned entity:

Registering an owned entity involves several challenges such as:

Complex Legal requirements: setting up an entity in different country requires organization to comply with the legal, financial and administrative intricacies. This includes registering the entity with the appropriate government authorities, obtaining legal licenses and permit, and ensuring compliance with the law. this process is very time consuming and may take up to a year for setting up the operation.
Cost and expenses: setting up and maintain a entity in foreign lands often involves significant cost, including registration fees, legal expenses, work permit, approval and ongoing compliance cost. this expenses can vary depending on the jurisdiction and the type of entity being registered which can demand significant time allocation.
Time and Administrative burden: Registering an owned entity requires completing various paperwork, fillings and administrative task which can be very complex, labour intensive and time consuming. delays in registration or administration may cause errors and further prolong the process.
Tax implication: Establishing a separate entity may require the business owner to set up tax implication including potential tax liabilities, reporting and compliance with tax and regulations. Understanding and managing this taxes considerations can be challenging for the business owners especially if you are multinational company.
Structuring and governance: determining the optimal legal structure and governance framework for the owned entity may require to take care of various factors such as ownership, management, decision making authority and shareholder rights. Establishing a clear governance before setting up the owned entity can help mitigate the conflicts and also ensure effective management of the entity.
Cultural and operational differences: owning a separate entity in foreign countries can have challenges related to their culture and differences. Business needs to understand the local customs, business practices and norms to ensure successful operations and establishment if foreign land.

Best practices for establishing owned entities:

Clearly define the objectives for setting up the owned entity is it for the purpose for market expansion, tax exemption, risk management or operational efficiency.
Do a market research and evaluate the feasibility of establishing the owned entity. Assess the market demand, competition, regulatory framework, potential risk and compliance.
Choose the suitable legal business structure aligned with your goals and objectives based on factors such as liability protection, tax implication and governance requirement.
Follow the legal and regulatory requirement for registering the owned entity with the government authorities and obtain all the permit from local, state government.
Prepare all the necessary legal documents such as articles of incorporation, operating agreements, shareholder agreement and make sure all the documents reflect ownership structure, rights and responsibilities and decision making body.
Define the composition of directors, appointment of officers, voting rights meeting procedures and conflict resolution mechanism. this is to ensure that organization has established a clear line of authority and accountability for the entity.
Determine the financing and capitalization need of the owned entity and make sure to implement accounting and reporting system to track financials transactions and manage the asset and liabilities of the business and prevent fraud.
Build operational infrastructure such as hr department, leasing or purchasing furniture, implementing IT system and supply chains. this help develop policies, procedures and workflows to streamline operations.
Lastly continuously monitor the performance compliance of the owned entity and establish benchmark and standards to measure the operational efficiency and profitability of the entity.

Alternatives to registering an owned entity in a foreign market:

When expanding in foreign market business can explore alternatives owned entities to reduce risk, reduce cost. Some of the alternative include:

Distribution agreement: Business can enter into business agreement with local distributors or agents. this can allow them to sell their products or services without the need for a physical setup in the country
Licensing and franchising: Business can license their intellectual property or franchise their brand name to local partners. This allows them generate revenue through loyalty and franchise fees without the need for direct ownership. This also offer scalability and expansion opportunity while leveraging local market opportunities.
Joint venture: Business can partner with local partner or investors by establishing a separate entity also known as joint venture. This allows business to share risk, resource and expertise while gaining assess to local market insights, network and resources.
Strategic alliances: Business can for alliances or partnership with local firm, suppliers, distributors to collaborate on special projects , initiatives.
Contract manufacturing and outsourcing: business can outsource manufacturing service to local contractors or suppliers in foreign market. this allows them to benefit from cost saving, scalability, and specialization without the need for direct ownership or investment in production facilities.