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A branch office is a unit of a parent company established in a foreign market or otherwise separate location with the aim of conducting business. A branch office is not an independent entity in a legal or functional sense — it is established as an extension of the parent company, which is responsible for its liabilities and taxes.
Branch office activities
As branch offices are extensions of the parent company, they can be used to perform all of the same activities, including but not limited to:
- Selling goods and services
- Manufacturing products
- Storing products
- Collecting data
- Performing market research
- Launching advertising campaigns
In other words, a branch office acts as an agent of the parent company although physically separate from the main office. This aspect of physical presence in a foreign or otherwise remote market is the main benefit of a branch office. It provides a tangible presence and also acts as a base or hub in the parent company’s logistics network.
Another major role of a branch office is to serve as a contact point for customers. In addition to selling a product or service, a branch office, depending on what the company produces, can be used to perform repairs, store goods for on-the-spot transactions (i.e. act as a retail store) and generally serve as a customer support centre.
Furthermore, a branch office is an important element in a company’s market research and business expansion strategy. A branch office may hire local residents to gain insight into the culture and environment of a foreign market, as well as to draw on knowledge of the market itself. The parent company’s home office cannot do this, and would require mediators or consultation with experts on the foreign market. Depending on its distance from the home office, a branch may also be advantageous when reacting to certain business-related events, as it is likely to receive information sooner.
Advantages of a branch office
A branch office has several advantages over other forms of company representation in a foreign market:
- Scope of activities
- A branch office can perform all of the same activities as the home office, while offering better access to local resources and information.
- Local presence
- A branch office is able to access local suppliers and clients without the need to set up a delivery and supply network, increasing the overall effectiveness of the company’s services as well as negating the effect of the distance between the foreign market and the home office, which can discourage potential partners.
- Service adjustability
- As a branch office is a separate structure, its activities can be adjusted to the needs of a foreign market without overhauling the structure of the whole company — location-specific products, service types, etc. can be assigned to the branch to manage, rather than the home office.
Disadvantages of a branch office
A branch office also has certain disadvantages:
- Incorporation requirements
- As a branch office is an extension of the parent company, with an equal scope of activity, most jurisdictions impose stricter regulations on the registration and management of branches.
- Legal status
- A branch office is not a separate entity in a legal sense, which is why liabilities and tax burdens remain the responsibility of the parent company; if a branch office fails, the parent company will need to cover all the related expenses (this may vary depending on the jurisdiction).
- Incorporation costs
- As branch offices are usually incorporated as fully fledged extensions of the parent company (otherwise their original purpose would be lost), they require more resources and a well-established network of connections to the home office to ensure that they are able to function properly.
If you would like to find out if a branch office is a suitable choice for expanding your business, please do not hesitate to contact us.
Differences between a branch office and a representative office
The main difference between a branch office and a representative office is that a branch is not limited in terms of the scope of activities it can conduct, meaning that it can engage in transactions with customers, issue invoices and conduct any other direct business activities. Other than that, differences vary from jurisdiction to jurisdiction, but generally a branch office can be seen as a fully functional extension of the parent company, whereas the potential activities of a representative office are limited to managing information and serving as a point of contact (not point of sale) between the company and local customers.
Branch office registration
The documents required to register a branch office vary between jurisdictions, but generally the following are needed:
- A branch office registration form (usually issued by the relevant national authority) Proof of registration of the parent company
- A document describing the management of the branch office and an authorisation indicating the scope of activity permitted
- A written declaration of the parent company’s decision to incorporate a branch office The parent company’s certified incorporation documents
- A document proving that the taxes and fees associated with registering a branch office have been paid
Other required documents may include proof of a local registered address, evidence of a local bank account and others.
Please note that this is a generalised list of requirements. If you are interested in finding out what documents your business needs to open a branch office in a particular jurisdiction, please contact our lawyers for a free consultation.
Most popular jurisdictions for branch office opening
We can offer our customers branch office opening services in numerous jurisdictions, however, some offer more favourable corporate legislation than others. Our lawyers advise considering following jurisdictions for the branch incorporation.