Subsidiary Management: A Guide for the Corporate Secretary™ About the Society Founded in 1946, the Society of Corporate Secretaries and Governance Professionals, Inc. (the “Society”) is a Section 501(c)(6) non-profit organization comprised principally of corporate secretaries and business executives in governance, ethics and compliance functions at public, private and not-for-profit organizations. Members are responsible for supporting their board of directors and executive management in matters such as board practices, compliance, regulation and legal matters, shareholder relations and subsidiary management. Society Mission: Shaping governance through education, collaboration and advocacy Society Vision: Creating long-term shareholder value through better governance Society of Corporate Secretaries and Governance Professionals, Inc. 240 West 35th Street, Suite 400 New York. NY 10001 © Copyright 2016 All Rights Reserved Acknowledgment May 2016 The Corporate Practices Committee is pleased to offer an updated edition of Subsidiary Management: A Guide for the Corporate Secretary. The Committee would like to thank the following individuals who contributed to the 2016 update: Kari Endries, Assistant Secretary & Managing Counsel, Chevron Corporation Faraz Choudhry, Associate General Counsel, UnitedHealth Group Incorporated Stacey K. Geer, Executive Vice President, Chief Governance Officer, Deputy General Counsel and Corporate Secretary, Primerica, Inc. Jeffrey Iredell, Director of Sales, CT Corporation Mary Kullman, Former SVP, Chief Administrative Officer & Corporate Secretary, Laclede Group Seth McNary, CEO, Verbatim Global Compliance Scott Seeley, Vice President-Governance, NextEra Energy, Inc. Brian Smith, Corporate Consultant, Corporation Service Company Rachel C. Lee Chairman Corporate Practices Committee Subsidiary Management: A Guide for the Corporate Secretary This guidebook presents background information on the nature and use of subsidiaries, including tips to help a corporate secretary support the formation, acquisition, management, sale, and dissolution of a subsidiary. It primarily discusses U.S. law, offering insight into certain non-U.S. entity management considerations where reasonably practicable. Cautionary Note: What this manual is not This publication is offered with the understanding that the publisher is not engaged in rendering legal, tax or accounting advice. It is a compilation of best practices and collective wisdom from various individuals who work with subsidiaries. It does not provide comprehensive coverage of all legal, tax or accounting considerations. If you are seeking legal, tax or accounting advice, you should consult an attorney or accountant whose practice includes subsidiary matters and who monitors developments in these areas. Definitions In this Guidebook, “company” is a generic term for any of the legal entities described in the text. We use the term “subsidiary” to mean a legal entity owned in whole or in majority part by a legal entity or a representative/branch office of a legal entity. On a “corporate organization” chart, a subsidiary would appear below its “parent.” There can be subsidiaries of subsidiaries. All of these, collectively, are “affiliated” with one another. “Foreign” subsidiaries are those operating outside their state or country of domicile. “U.S. companies” are those incorporated in any U.S. state. “Non-U.S. companies” are those incorporated in any jurisdiction outside the U.S. “State” refers to a U.S. state. Industry regulators, state statutes and non-U.S. regulations may have specific definitions of “subsidiary” or “affiliate” (with attendant consequences such as reporting obligations). For example, the Bank Holding Company Act defines a parent-subsidiary relationship as the ownership by the parent of 10% or more of the subsidiary. A state corporate or tax statute may refer to 50% or more. U.S. federal securities laws use a “control” test under which the ability to influence the management of another company can trigger an affiliated or parent-subsidiary relationship. TABLE OF CONTENTS I. INTRODUCTION .......................................................................................................................................... 1 II. SUBSIDIARY FORMATION .............................................................................................................................. 2 A. WHY ARE SUBSIDIARIES FORMED? ........................................................................................................... 2 (1) Legal Requirements .............................................................................................................................. 2 (2) Tax Planning Considerations ................................................................................................................ 3 (3) Management or Operational Concerns/Opportunities ....................................................................... 4 B. FORMING OR ACQUIRING A SUBSIDIARY .................................................................................................. 5 (1) Endorsing the Decision ......................................................................................................................... 5 (2) Choosing the Type of Entity ................................................................................................................. 6 (3) Choosing a Domicile .............................................................................................................................. 9 (4) Choosing a Name ................................................................................................................................ 10 (5) Checking Name Availability and Name Reservations .......................................................................... 10 (6) Electing Directors and Appointing Officers ........................................................................................ 11 (7) Choosing a Registered Agent ............................................................................................................. 13 (8) Filing and Registration ........................................................................................................................ 14 (9) Working with Outside Counsel and Service Providers ....................................................................... 14 (10) Organizational Activity ..................................................................................................................... 15 (11) Subsidiary Information Profile ......................................................................................................... 15 (12) Acquired Entities ............................................................................................................................... 15 III. MAINTAINING A SUBSIDIARY THROUGH ITS LIFE CYCLE ............................................................................. 17 A. REQUIRED ACTIONS AND PROCEDURES .................................................................................................. 17 (1) Meetings of Shareholders and Boards ............................................................................................... 17 (2) Records (bylaws, articles, minute books, ledgers) ............................................................................. 17 (3) Subsidiary Changes, i.e. Reorganizations ........................................................................................... 18 (4) Subsidiary Dissolution/Liquidation/Termination ............................................................................... 19 B. REPORTING REQUIREMENTS ................................................................................................................... 22 (1) Annual reports .................................................................................................................................... 22 (2) Tax Reporting Requirements .............................................................................................................. 22 (3) Unclaimed Property ............................................................................................................................ 23 C. MAINTAINING CORPORATE SEPARATENESS ........................................................................................... 23 D. TECHNOLOGY .......................................................................................................................................... 25 (1) Licensing vs. In-house Development ................................................................................................... 26 (2) Paper to Technology – Initial Data Entry ............................................................................................ 27 (3) Training ............................................................................................................................................... 27 (4) Information Management .................................................................................................................. 27 (5) Repository ........................................................................................................................................... 28 (6) Calendaring ......................................................................................................................................... 28 (7) Efficient Record Management ...........................................................................................................