The subsidiary liability can affect the financial situation of your business. In the event that this falls on the company or any of its directors, when a third party breaches the terms of an agreement, certain obligations would fall on you, as agreed.
Subsidiary liability is an obligation which is regulated by the Law 58/2003, of 17 December, General Tax Law. The exercise of a right by one person or entity would trigger this liability, as a consequence of an omission by another.
The omission is that which would have occurred when one of the parties to a contract had not complied with what was agreed or with the agreed terms. In such a case, and provided that this has been established by a valid and legal agreement, the vicariously liable party would have to face the obligation.
This obligation can be directly monetary, for example, when the person liable to pay a debt fails to pay it, or of another type, such as in the case of a breach of contract. by the company with respect to the working conditions agreed with the workers.
In addition to the corporate social responsibility or moral or ethical responsibility, in this article we will focus on the subsidiary liability. But the managers of a business can also incur a joint and several liability.
The terms subsidiary and joint and several liability are often confused.. However, the only thing they have in common is the need to meet obligations.
In the case of subsidiary liability, we have already mentioned that it would not be a liability acquired directly, but indirectly. Action would be taken when the holder of an obligation fails to fulfil its part of an agreement, which would be passed on to the next liable party, the subsidiary. In the case of joint and several liability, however, things change.
Joint and several liability refers to an obligation that arises jointly for several individuals. This means that, at the same time, different persons or companies undertake to act jointly and severally in a given case and can be required to do so, if there is an agreement, contract or legal provision in which this is stipulated. It is a common obligation on the same debt..
This is not the norm, however, it could be the case that both responsibilities are present in the same situation. This would be the case, for example, if a large loan is granted to the business, and all its administrators are subject to the obligation to pay it, as guarantors.
If the main debtor is unable to assume liability, the creditor should turn to the next guarantor, who is vicariously liable. But if payment is not made on the agreed terms, the other guarantors could be called upon, making the situation an example of the application of joint and several liability.
Subsidiary liability is characterised by the fact that it is an obligation that does not arise from a binding agreement between the obligor and another party, but from a third party and another party; and it needs the non-performance of this third party in order to be triggered.
No differentiation of degrees of subsidiary liability, This is not the case with joint and several liability. Nor is it an obligation that can be demanded at any time, since it only exists in one case: in the event that someone does not comply with what was required of him by virtue of the contract.
Examples of subsidiary liability that are quite common in the business world would be the case of a company whose director does not meet his tax obligations, causing an irregular situation which results in a fine. This fine must be paid by the other directors in a subsidiary capacity.
Another example is when a middle manager in a company commits an irregularity that is reported by an employee. When this happens, the company cannot deny its share of responsibility for the situation and is therefore considered to be vicariously liable.
The obligation to which the subsidiary liability is attached is extinguished at the same time as it is satisfied.
