Branch Legal Entity

An important topic for any business that expands to a new location (whether national or international) is to develop the right structure for its business activities in a new location. And the key question here is, should you open a branch or subsidiary? Here we explain the difference between the two and consider the pros and cons of each option. A subsidiary, on the other hand, is a new company in a foreign country. It is considered a separate legal entity that has several different advantages and disadvantages depending on your overseas growth objectives and the internal resources you have to manage this new entity. A subsidiary may have a completely different business purpose than its main parent company, while a branch operates in the same way. It is important to note that your company must hold more than half of all available voting shares in a subsidiary. On the other hand, a branch (BO) is a direct extension of an existing legal entity in the group of companies in a new country. This is usually achieved by registering or qualifying a foreign company in another country. BOs are designed to generate revenue and operate manufacturing facilities in a country. References: 1. How to choose branches or subsidiaries in your business structure, by Matthew Gilleard. 03.09.2012. www.internationaltaxreview.com/Article/3083623/How-to-choose-branches-or-subsidiaries-in-your-corporate-structure.html.

Retrieved 2018.05.11. 2nd subsidiary vs branch vs representative office. 9/8/2017. enstoncorp.com.sg/secretary/subsidiary-vs-branch-office-vs-representative-office/. Retrieved 2018.05.11. 3. Why multinationals prefer and create subsidiaries, not just a branch, by John P. Gordon. www.usa-corporate.com/articles/05052005.pdf. Retrieved 11.05.2018. The relative advantages of setting up a branch over a subsidiary differ considerably depending on the company concerned and the country of expansion.

This means it`s important to hire an international expansion partner to explain which option is best for your business. Before you expand your business into new territories, you need to think about how your business will maintain compliance in your target markets. The first step towards compliance is to establish a legal presence in your new market. There are many ways to do this, such as: setting up an entity, hiring foreign independent contractors, or using other global hiring solutions. There are many differences between branches and subsidiaries, among which it is important to take into account the following distinguishing features: This issue of tax compliance also leads to one of the main advantages of a subsidiary over a foreign branch: the former enjoys a much greater separation of risks than the latter. If you open a branch abroad and there is a local compliance issue in that branch, it can easily lead to a ripple effect that negatively affects the rest of the business. In the case of a subsidiary, each risk (and the consequences of those risks) is distinct from the parent company. Choosing the right global expansion method for your business is a complex decision, and there are many factors to consider. Setting up a subsidiary, a branch abroad or using a global reference employer are just a few options.

Each hiring method has different pros and cons that you need to weigh carefully before moving to foreign markets, otherwise you may not be compliant with local laws. Every country is unique. For example, the establishment in France requires a completely different approach from that of Brazil. You need to consider politics, culture, legal system, taxes, etc. This article provides a summary of each consideration and the pros and cons of these types of presence. Not necessarily. As a legal entity, branches must also be registered in the local government business register. Some annual trade formalities may not be required, but other accounting and regulatory requirements generally still need to be applied.

Branches are often used for very limited or temporary activities. A foreign branch is another location of your company that operates entirely in another country. Think of it as an extension of your main office, similar to adding an extension to your current desktop, but on a global scale. A branch is simply another location for your business. A branch is an extension of your main office, as if you were adding another room to your current building. When you start a subsidiary, you start a new business. A subsidiary is considered an independent legal entity. Your company must hold more than 50% of the subsidiary`s voting shares, although it may hold up to 100%. There are two main factors to consider when choosing the best option for your business: taxation and risk.

However, a BO is not a separate legal entity from the parent company and does not offer the benefits of parental responsibility protection. CO are often subject to a withholding tax of 20%. In many cases, the branch performs exactly the same activities as the head office. It is headed by a “branch manager” (or in some cases a “country manager”) who reports directly to the head office. 4. Any company considering international expansion should consider all possible options for setting up abroad. In addition to branches and subsidiaries, this means considering affiliates, mergers and acquisitions, representative offices and global PEOs. The main reason for using a subsidiary instead of a BO is to maintain the separation of the company from the parent company. This allows companies to isolate the risk exposure from the amount of capital investment that the parent company has made in the subsidiary.

The legal concept is that each company has a unique identity and that parents should not be held de facto responsible for ancillary liabilities (in the same way that parents of natural persons are generally not held responsible for the activities of their children). Read this article for more information on the role of subsidiary management in limiting parental responsibility. As your business grows, the time will come when you will need to consider the next step for the business. This could mean that you need to expand your business to a new location. One of the first decisions you need to consider is the demand you want to meet your target market and how you want to structure your expansion. When you look at the structure, you want to ask yourself if it would make more sense to have a branch or a subsidiary. To make that decision, we need to look at what the differences between the two would be. In conclusion, it is important that you make the best decision for your business. Knowing in advance which path you will take will allow you to plan the necessary legal and tax work.