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Key Takeaways
- When expanding internationally you have various different options, including setting up a subsidiary, a representative office or a branch office.
- Setting up a branch office may be faster than a subsidiary, but means additional liability for your company.
- Due to the limitations on branch offices, they can be a good initial step for international expansion, before setting up a full subsidiary.
Have you thought about setting up a branch office when expanding operations overseas? Here we look at the pros and cons of this business structure, and where it may make sense to set up a branch office rather than a subsidiary.
What Is a Branch Office?
A branch office is a separate physical location where a company does business. It is not a distinct legal entity from the company that creates it. Therefore, that company bears all of the liability that a branch may incur, and any legal actions would be directed at the company and not the branch office (See Source).
Branch offices may be a regular part of the domestic business structure of a company such as in the example of banks, which typically offer the same services at all of their locations. However, a branch office may be set up to provide only one or a limited set of business functions, for example, accounting, marketing, or recruitment in a specific region.
Many countries allow foreign enterprises to set up branch offices on their soil without the need to register as independent legal entities. These offices, however, may be limited in the business functions they’re allowed to undertake.
In France, for example, a branch office must use the same name as its parent company and can only undertake the same business activities as its parent. However, a French bank account is not needed to set up a Branch Office, nor any minimum capital investment.
In China, branch offices may be registered as “branch companies” under the Company Law. As with the France example, the branch company cannot operate beyond the scope of its parent company.
How Does a Branch Office Differ from a Subsidiary?
A branch office is simply a separate physical location but doesn’t involve actually setting up a new legal entity. In many countries, foreign companies can set up branches, but these only have limited activities, and their liability falls squarely on the shoulders of the parent company. A branch office is considered as legally the same as its parent company so it doesn’t need to be incorporated. Branch offices are, therefore, relatively fast and easy to set up, register, and dismantle.
By contrast, a subsidiary is a legal entity separate from its parent company. It may use the same or a different name from its parent, depending on how that company desires to represent their relationship. A subsidiary is its own legally registered entity and, therefore, can have its own capital, assume its own liability, do its own accounting, and make its own business decisions. Legal actions can be directed toward the subsidiary and not the parent company.
As the subsidiary is owned, either in the majority or wholly, by the parent company, it operates under the direction of that parent. The parent company, therefore, effectively controls the subsidiary’s business decisions and directions.
How Does a Branch Office Differ from a Representative Office?
Another type of business structure that’s possible to set up is a representative office (RO). This kind of office is very similar to a branch office in that it isn’t separately incorporated and is, therefore, not a separate legal entity from its parent company. However, there is one important distinction between a BO and an RO.
A branch office is allowed to perform business activities that generate income. This is especially important when it’s set up in a foreign company where it can act as a trading entity. The Branch Office’s activities can be limited in scope depending on the country where it’s located. However, it’s allowed to generate income and usually pays taxes to its host country.
A representative office, on the other hand, is strictly a non-trading entity. It might engage in activities like market research or representation, but it technically does not do any business. A representative office, therefore, doesn’t pay corporate taxes and needs little oversight. It may contact customers and even enter into contracts on behalf of its parent, but it can’t do any business on its own. To read about how representative offices work in China specifically, check out our in-depth guide on the topic.
Comparison of Branch Office, Subsidiary, and Representative Office
| Feature | Branch Office (BO) | Subsidiary | Representative Office (RO) |
|---|---|---|---|
| Legal Status | Not a separate legal entity | Separate incorporated entity | Not a separate legal entity |
| Liability | Parent company bears full liability | Liability limited to subsidiary | Parent company liable; no trading risk |
| Ability to Generate Income | Yes | Yes | No (non-trading) |
| Setup Complexity | Moderate | High | Low |
| Allowed Business Activities | Within parent’s scope; often limited | Broad; based on AoA | Market research + liaison only |
| Ideal Use Case | Fast market entry | Long-term local operations | Early presence without operations |
Unsure whether you need a branch office, subsidiary, or representative office? MSA helps you evaluate legal liability, tax exposure, and operational needs to select the right structure for your market entry. Speak with our corporate establishment experts today. Message →
What Are the Pros and Cons of a Branch Office?
Depending on what a company’s business goals are in a new location and whether that location is domestic or in a different country, it may wish to set up a branch office. These offices have some advantages to other business forms, but they also have their limitations:
Pros of a Branch Office
- Ease of set-up: Generally, setting up a branch office in most jurisdictions is faster, easier, and cheaper than registering a subsidiary or other new business entity.
- Trading: Unlike a representative office, a branch office can trade. It can generate revenue for its parent company, and its accounting has to be incorporated into the parent company’s accounts.
- Entering new markets: Setting up a branch can be a useful way to start out in a new market and explore how business might develop. It can then be transformed into a subsidiary at a later date if the business succeeds.
Cons of a Branch Office
- Liability: The branch office may incur debts or legal liability that must be assumed by the parent company.
- Limitations: As dependent businesses, branches usually have stricter limitations on their activities than subsidiaries, and independent businesses do not.
Branch offices operate under the parent company’s legal liability, offering simplicity compared to subsidiaries but requiring careful management of regulatory relationships. MSA Asia’s branch office setup specialists guide you through structure and compliance. Connect with our team to explore branch setup.
For the full China company registration process, see our service overview.
When the branch is no longer needed, the parent must deregister a Chinese entity through SAMR — a 6-to-9-month process.
FAQ
It depends on the country. In some countries — none. The branch is part of the already-established parent company, which already has registered capital. In some countries the authorities will only register that branch where official capital requirements have been met.
Usually, there is no official requirement to do so. However, professional support can streamline the process and make sure that a branch is, in fact, the right option for you.
