Many companies have seen potential growth in their business. The next step for them is to expand the company. Here is essential to look for a corporate structure suitable for the concept of the work done in the company.
Most famous corporate structures are based on both branches and the subsidiary model.
A branch is a part of the same business and performs the same operations, only with an office in a foreign country. This office has a branch manager that will report and answer to the management at the main office.
A subsidiary is a company where another company handles control and ownership. This company is called the parent company.
- A branch is part of a business that operates under the same name and legal entity as the parent company but in a different location.
- A subsidiary is a separate legal entity owned and controlled by another company.
- A branch is an extension of the parent company, while a subsidiary is a separate legal entity with its assets, liabilities, and legal status.
Branch vs Subsidiary
A branch is part of a company that operates under the same name and legal entity as the parent company in a different geographic location. A subsidiary is a separate legal entity owned and controlled by another company. It can operate under a different name and is incorporated in the country.
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Branches have to operate with the same business operations as the head office. In contrast, the subsidiary company can or cannot operate the same business operations as of the holding company.
A business is an organization that is engaged in professional or commercial activities. This type of organization can be for-profit or non-profit.
A business or commercial activity is an organization that provides services and goods, and the motive of the organization is to make earning profit.
|Parameter of Comparison||Branch||Subsidiary|
|Definition||A branch is a part of the same business and performs the same operations, only with an office in a foreign country.||A subsidiary is a company where another company handles control and ownership. This company is called a parent company.|
|They are reporting and taking instructions from||Head office||The parent or holding company|
|Do they have legal standing||Branch companies do not have separate legal standing.||A subsidiary has a separate legal standing from the parent or holding company.|
|What kind of accounts do they have||Branches have joint or separate accounts||Subsidiaries have separate accounts|
|Investment||The parent company must invest 100% in opening a branch company.||It will take 50-100% to own a subsidiary.|
What is Branch?
A branch is a part of the same business and performs the same operations, only with an office in a foreign country. This office has a branch manager that gives reports and answers to the management at the head office.
The reason that a lot of companies have experienced success and growth is because of the branch companies. This way, the parent company can expand and be even more successful.
Opening a branch company in a foreign country can lead to greater control of the parent company. This means that the parent company oversees every activity in the branch company.
Also, the parent company has complete control over its branch for making decisions.
Set up branches at various locations, which can increase access and provide goods and services for the clients.
Another essential fact is business expansion. Companies that open branches in foreign countries have more chances to experience growth in the business.
Opening a branch can lead to an increase in the visibility of the brand and bring more profit to the company.
What is a Subsidiary?
A subsidiary is a company where another company handles control and ownership. This company is called a parent company or sometimes a holding company.
The difference between these two terms is that the parent company has its operations. This company runs the business and has another company – the subsidiary.
On the other hand, the holding company doesn’t have operations on its own; it controls only shares of stock and the assets of subsidiary companies.
How does a subsidiary work?
When the parent company establishes or buys a subsidiary, the subsidiary can provide taxes, risk, and assets like earnings, equipment or property to the parent company.
It’s important to know that the subsidiaries work separately from the parent companies and have distinct legal entities. This reflects their tax, liabilities, and governance.
If a subsidiary is located in a foreign country, it must follow the laws to avoid any lawsuits.
The parent company’s most significant advantage in opening numerous subsidiaries is the low tax. In some countries, the subsidiaries pay taxes only for the profit they make in that state.
Parent companies have a significant benefit from the subsidiaries. If the parent company has a potential loss, it can limit it by using the subsidiary as a liability shield against any financial losses or lawsuits.
If the subsidiary suffers a loss in profit or has any legal or law issues, this will not affect the parent company.
Main Differences Between Branch and Subsidiary
- A branch is a part of the same business and performs the same operations, only with an office in a foreign country. A subsidiary is a company where another company handles control and ownership. This company is called the parent company.
- The branch company needs to inform the head office of every decision or job done, whereas a subsidiary needs to inform the parent or the holding company.
- When it comes to legal standing, a branch doesn’t have separate legal standing. On the other hand, a subsidiary has a separate legal entity, also a different identity from the parent or holding company.
- The accounts a branch can possess are joint (the account from the parent company) or separate accounts. Apart from the parent company, а subsidiary has its account.
- The investment from the parent company has to be 100% for establishing a branch in a different place. But, to own a subsidiary, the parent company’s investment must be 50-100%.
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Chara Yadav holds MBA in Finance. Her goal is to simplify finance-related topics. She has worked in finance for about 25 years. She has held multiple finance and banking classes for business schools and communities. Read more at her bio page.