When one company becomes several
Businesses add legal entities for many reasons. You might open a subsidiary to trade in a new country, put property or intellectual property into a separate holding company, ring-fence a riskier line of business, or bring in an investor for one part of the group only.
Whatever the reason, each company is a separate legal person. It has its own obligations to file accounts, pay tax and keep records, even when the same people run all of them. That is the starting point for everything else in this guide: the group is how you manage the business, but each company is what the law and the tax office see.
What each company keeps for itself
Each company needs:
- Its own books. A complete ledger with its own trial balance, profit and loss and balance sheet. Every transaction belongs to exactly one company.
- Its own legal and tax details. Registered name, registration number, tax identification numbers and indirect tax registrations. These appear on its invoices, and the rules for what must be shown differ between countries.
- Its own bank accounts. Paying one company's costs from another company's account creates an intercompany balance, as explained below. Doing it casually is how group books get tangled.
- Its own tax filings. Income tax, indirect tax and any withholding tax are filed per company, on that country's calendar.
- Its own functional currency. A Vietnamese subsidiary normally keeps its books in VND even if the parent uses SGD. Your accounting standards and local rules decide this, so check them.
- Its own financial year and period close. Aligning year-ends across the group, where local law allows it, makes group reporting simpler.
What the companies can share
Plenty can be shared, and sharing it saves work:
- Customers and suppliers. If two of your companies sell to the same customer, keep one customer record with one set of contacts and tax details. Each invoice still belongs to the company that issued it.
- The structure of the chart of accounts. Using the same account codes in every company makes group reporting much simpler, even if some accounts are only used by some companies.
- Items and price lists, where companies trade in the same products.
- People and policies. One set of users, one approval policy for purchases, one month-end checklist. Access can still be limited by company.
Intercompany transactions, with an example
An intercompany transaction is any transaction between two companies in your group. Common ones:
- One company recharges shared costs, such as rent, software or staff time, to another.
- One company sells goods to another.
- One company lends money to another.
- A customer of one company pays into another company's bank account.
Each intercompany transaction is recorded twice, once in each company's books, as a receivable in one and a payable in the other.
Say Company A and Company B are both in your group and both keep their books in SGD. A customer of Company B pays SGD 4,000 into Company A's bank account.
| Step | Company A | Company B |
|---|---|---|
| Customer pays into A's account | Debit bank 4,000, credit payable to Company B 4,000 | Debit receivable from Company A 4,000, credit customer receivable 4,000 |
| A transfers the money to B | Debit payable to Company B 4,000, credit bank 4,000 | Debit bank 4,000, credit receivable from Company A 4,000 |
After step one, the customer's invoice is settled in Company B's books, A owes B SGD 4,000, and the two intercompany balances mirror each other. After step two, both are zero.
Now say Company A charges Company B a management fee of SGD 2,000 for shared finance staff. Company A records fee income of 2,000 and a receivable from B. Company B records a fee expense of 2,000 and a payable to A.
Cross-border intercompany charges bring extra rules. Transfer pricing rules may require the fee to be set at arm's length and documented. Withholding tax or indirect tax may apply to the charge. These rules vary a lot by country, so check your local rules or ask a tax adviser before you set up recurring charges between companies in different countries.
Keeping intercompany balances in step
The receivable in one company and the payable in the other should always agree. In practice they drift apart. Typical causes:
- Timing. One company booked the charge in October, the other in November.
- A missing entry. One side recorded it, the other did not.
- Exchange rates. If the companies use different currencies, each converts at its own rate, and small differences appear.
- Wrong counterparty. The balance was booked against the wrong company in the group.
Build an intercompany reconciliation into every month-end close:
- List every intercompany balance by pair of companies.
- Compare each company's receivable with the other company's payable.
- Agree the differences and correct them in the period they belong to.
- Settle balances in cash regularly, so they do not grow into large, old amounts nobody can explain.
Group reporting and consolidation
Owners and lenders usually want to see the group as one business. Adding the companies' figures together is not enough, because the group would then count its own internal trading as income.
Consolidation removes it. Using the management fee from the example above:
| SGD | Company A | Company B | Simple total | Elimination | Group |
|---|---|---|---|---|---|
| Revenue from customers | 120,000 | 80,000 | 200,000 | – | 200,000 |
| Management fee income | 2,000 | – | 2,000 | (2,000) | 0 |
| Management fee expense | – | 2,000 | 2,000 | (2,000) | 0 |
The steps are broadly:
- Close each company's books for the period.
- Reconcile and agree intercompany balances.
- Translate any company with a different functional currency into the group's reporting currency. Frameworks generally use the closing rate for the balance sheet and an average or transaction rate for profit and loss, with the difference held in equity. Check the standard that applies to you.
- Eliminate intercompany balances, income and expenses, and any unrealised profit on goods still held within the group.
- Produce the group profit and loss, balance sheet and cash flow.
Whether you must publish formal consolidated statements depends on your size, ownership and where you are incorporated. Some countries exempt small groups. Check your local rules with your accountant. For more on the currency side, see multi-currency accounting. If you are running this across several separate systems and a spreadsheet, the signs you have outgrown your accounting software may sound familiar.
Where Nyra fits
In Nyra, you can run several legal companies in one workspace. Each company has its own legal name, registration number and tax registrations, and each invoice, bill, payment and manual journal is tagged to the company it belongs to. Customers and suppliers are one shared list, while each invoice and bill belongs to one company. When a customer's payment lands in another company's bank account, or cash moves between two companies' bank accounts, Nyra posts both sides and creates the intercompany receivable and payable accounts for that pair automatically. The accounting overview, with profit, cash, invoices and bank balances, can be filtered by company. Documents can be in any currency, with totals in your main currency. See how it works on the multi-company page, or book a demo.
