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If the parent company wholly owns the subsidiary, could the employees of the subsidiary work on products of the parent company? Are special contracts needed?

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While this is not necessarily a startup question it's an interesting one. I am guessing that the question is regarding ownership of the product. – Karlson Jan 28 at 14:04

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could the employees of the subsidiary work on products of the parent company?

Yes. Think of it; plenty of multinational companies have development centers all over the world.

Are special contracts needed?

Yes, and this is much too situation-specific and complex for Answers.OnStartups. In general, you would need some kind of framework around a) transfer of intellectual property rights, including patents, trademarks etc, and b) transfer of money, including taxation issues.

Most young startups sidestep these issues by not creating a subsidiary .. just hire a service provider (an 'outsourcing' company) in the remote destination, and buy a service from them.

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Thanks. But even with a service provider, IP rights will still need to be transferred, right? Is the transfer of money from parent to subsidiary complex? – Kate Jan 30 at 2:33
@Kate: Yes, with a service provider IP issues still need to be handled, but if the service provider is large & good, they often have reasonable default contracts. Transfer of money to a subsidiary is easy--it's just a interbank transfer. The correct legal structure & accounting is important to avoid tax problems. – Jesper Mortensen♦ Jan 30 at 10:54
Thanks. However, suppose we only want our people to work on the product, do you think that opening a separate entity employing our developers is better than having a subsidiary? I just thought that it'd be be more attractive to investors if the development firm is under the same umbrella rather than hoping that the contracts with the independent entity for development can be renewed. – Kate Jan 30 at 15:19

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