Planning to set up a new company or expand your business to new locations? But confused about whether to start it as a branch or subsidiary? If so, are curious to know what’s the difference between a branch and a subsidiary? Do these terms convey the same meaning or do they differ? Well, this blog will help you understand the difference between branch and subsidiary.
In this blog, we’ll dive deeper into the key differences between a branch and a subsidiary, and the major challenges associated with each one, helping you choose the one that rightly matches your business expansion goals. So read the blog and gain better insights and choose the one that rightly matches your business aspirations.
So let’s get started!
What is meant by a Branch?
A branch is an extension of a company which is meant to be present physically in multiple locations. The main aim of a branch is to access diverse markets and provide services to a wide range of customers. A branch office is considered a great part of the parent company and the parent company is responsible for the actions of the branch office. Also It has no different legal identity.
A branch office does the same business of the head company and each branch of the company competes with each other regarding the sales target. Each branch office would have a branch manager and they should report to the head office. Though each branch has the same marketing materials, their marketing efforts and plan should be different, adapting to the foreign country in which it is located.
What is meant by a Subsidiary?
A subsidiary company is a legally independent company whose shares are owned by a large company called a holding company. The holding company and its subsidiaries are known as a corporate group. A subsidiary company would be controlled by the parent company, but would have a separate legal identity from its parent company and the head company would not be responsible for the activities of the subsidiary companies. It would be considered as a a separate company that can sign contracts in its name and the tax system for a subsidiary company would be different from its parent company.
Major Difference Between Branch and Subsidiary
The major difference between a branch and a subsidiary is that branches are set up to increase the customer reach and approach various markets, but subsidiaries are formed as a part of a broader expansion strategy of the main company. Below we list the major difference between a subsidiary and a branch. Have a look at them and explore the major differences.
1. Reporting Entity
The reporting entities of both the branch and subsidiary are different. While the branch has to report to the head office, the subsidiary has to report to the holding company.
2. Branding Efforts
The branding effort of a branch and parent company would be the same, they use the same logo and slogans. A subsidiary can have independent and unique branding efforts.
3. Resources and Systems
For resources and systems, the branches have to depend on the head office while a subsidiary may or may not depend on the head office. A subsidiary has more autonomy compared to a branch
4. Business Activities
The business activities of a branch has to be same with the parent company, but a subsidiary can conduct a different business activity that is different from the parent company.
5. Legal Status
A branch and parent company has the same legal standings. But a subsidiary can have separate legal standing compared to the parent company.
6. Liability
The liability of a branch extends to its parent company. While the holding company doesn’t have any liability for the subsidiary
7. Maintenance of the Accounts
A branch has the option to maintain or not to maintain the joint accounts with the head office. But a subsidiary in no way maintains a joint account with the holding company.
8. Control Over Management
The head office has full control over the branch manager and staff. Whereas in the case of a subsidiary, the control is limited.
9. Ownership
A branch office would be fully owned by a parent company, while for a subsidiary, the ownership would be limited between 50 to 100%.
10. Performance and Financial Loss
If the branch is in loss, the parent company can close the branch, but if the subsidiary is in loss, it can be sold by the holding company.
11. Incorporation
The starting of a branch office is simple, but in order to start a subsidiary, the procedures involved are very complex.
12. Cost
The cost of starting and running a branch is cheaper when compared to the cost of starting a subsidiary
13. Legal Liability
The holding company doesn’t have any legal responsibility towards the actions of the subsidiary, whereas the parent company is liable for the actions of the branch office
14. Taxation
Branch is liable to pay corporate income tax on the profit reaped, depending upon the foreign country in which it is located. Subsidiaries have to pay income tax depending upon the foreign country in which it is located. But the taxation is straight and clear for subsidiaries.
15. Visa and Immigration
Hiring of foreign employees and local staff is a complex process for the branch office, while for the subsidiary, it is comparatively an easy process as they have a local presence.
16. Liquidation
In the case of a branch, the parent company is liable for the debt of the branch office, and there is simple closure with the transfer of staff and assets. But in the case of a subsidiary, the procedures are liquidated, de-registered and complex.
17. Capital Requirements
A branch does not require capital requirements as that of a subsidiary, but a subsidiary is subject to capital requirements and is subject to financial reporting.
18. Contractual Disputes
Debt recovery is complicated and expensive for branches during a branch closure, as no local entity is responsible for its debts, whereas a subsidiary is responsible for its debts locally.
Analytix - Your Trusted Business Partner in Saudi Arabia
Understanding branch and subsidiary difference is crucial before deciding which one to set up matching your business preferences. Understanding the local rules and regulations are also necessary, before setting up a subsidiary company or branch. In order to choose the best matching your business goals and requirements, consulting business setup professionals like Analytix will do good. We being the top business setup company in Saudi Arabia are well aware with the subsidiary and branch difference and various rules and regulations applicable for both. Consult us today and discuss your business plan, so that lets work together to achieve your business goals.
Conclusion
Well are you now clear with what is a branch and subsidiary and the difference between branch office and subsidiary? Hope you do! With our experience in the business setup in various countries including Saudi Arabia, we are well aware of the various trends and different types of businesses. And we incorporate our experience and expertise while working on your project. So what are you waiting for? Grab the phone and ring us and let’s have a detailed discussion about your next business project in Saudi Arabia.
