Branch vs Subsidiary
The key difference between Branch and Subsidiary lies in the fact that when a parent company provides its same service in a different location, it is known as a branch.
When another company operates a company’s ownership and control, it is known as a subsidiary.
Branches have to operate with the same business operations as of the head office, whereas the subsidiary company can or cannot operate the same business operations as of the holding company.
Business or commercial activity is an organization who provides service and goods, and the motive of the organization is to make earning profit.
Many companies have seen potential growth in their business. The next step for them is to expand the company.
Here is important to look for the corporate structure that will suitable for the concept of the work that is done in the company.
Most famous corporate structures are based on both branches as well as the subsidiary model.
A branch is a part of the same business and performing the same operations, only with an office that runs 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 type of company, where the control and ownership are handled by another company. This company is called the parent company.
Comparison Table Between Branch and Subsidiary (in Tabular Form)
|Parameter of Comparison||Branch||Subsidiary|
|Definition||A branch is a part of the same business and performing the same operations, only with an office that runs in a foreign country.||A subsidiary is a type of company, where the control and ownership are handled by another company. 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 they have||Branches have joint or separate accounts||Subsidiaries have separate accounts|
|Investment||The parent company will need to invest 100% to open 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 that runs in a foreign country. This office has a branch manager that gives report and answer 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.
To open a branch company in a foreign country can lead to greater control of the parent company. This means that every activity in the branch company is overseen by the parent company.
Also, the parent company has full control over its branch for making decisions.
To set up branches at various locations, it can increase access and provide goods and services for the clients.
Another important fact is the business expanding. 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 type of company, where the control and ownership are handled by another company. This company is called parent company or sometimes holding company.
The difference between these two terms is that the parent company has its operations. This is a company that 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 to the parent company taxes, risk, but also assets like earnings, equipment or property.
It’s important to know that the subsidiaries work separate 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, they must follow the laws to avoid any lawsuits.
The biggest advantage for the parent company to open numerous subsidiaries is the low tax. In some countries, the subsidiaries pay taxes only for the profit that they are making in that state.
Parent companies have a big benefit from the subsidiaries. If the parent company has a potential loss, they can limit the loss 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 that runs in a foreign country. A subsidiary is a type of company, where the control and ownership are handled by another company. This company is called the parent company.
- The branch company needs to inform the head office for every decision or job that is 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 that 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 investment from parent company has to be 50-100%.
Frequently Asked Questions (FAQ) About Branch and Subsidiary
- What is the difference between a subsidiary and a wholly-owned subsidiary?
A subsidiary company is a company that is 50 percent owned by another company, whereas the parent company completely owns a wholly-owned company.
In a subsidiary company, the parent company may control more or less to the concern of a subsidiary company depending on the level of management control and the management staff. In a wholly-owned company, all the activities and operations are directed and controlled by the parent company.
- Is a parent company responsible for a subsidiary?
No, a parent company will not be responsible for the acts and omissions of a subsidiary company.
However, there are certain circumstances where the parent company will be liable for actions such as:
1) Both parent and subsidiary company runs the same business.
2) The parent company has superior knowledge than the subsidiary company.
3) The parent company had knowledge of the subsidiary company’s system work in detail.
4) The subsidiary company depends on the fact that the situation will be handled by the parent company in the parent company’s knowledge.
- How is a subsidiary taxed?
Subsidiaries are required to maintain their own financial accounts and file their own tax returns.
A subsidiary is taxed separately from a parent company and pays its own tax. However, a subsidiary can choose to file a consolidated tax return with the parent company.
It happens if the parent company owns 80% or more voting rights and shares.
- What is the branch of a bank?
A branch bank refers to the same banks which are located in different areas for customer’s convenience.
Branch banks provide the same services as of the head bank in various locations. Hence, the banks distribute their branches all over the country.
- What is a branch of a foreign company?
When a foreign company establishes its branch in a country for carrying out its activities across the nation is known as a branch of a foreign company.
The foreign country can have revenue from the Indian branch if allowed by the RBI (Reserve Bank of India).
In order to incorporate a branch in India, the foreign country needs to get approval from the RBI. Any additional business activities by the branch office will be considered illegal if not mentioned in the application offered by the foreign company.
- What do you mean by holding company?
A holding company means a company which has several companies under control of it. It also indicates where a company owns the majority of shares in another company. It provides a wide range of products and services under one umbrella.
When a company has experienced growth in production, the next step is to expand the business and open new offices. The company needs to look for the corporate structure that will be suitable for the concept of the work. For example, if the parent company sets up a branch, this will help to increase the business and better access for the clients to the goods and services.
If the company opens a subsidiary, it will be with a different entity and will operate in a similar business. When it comes to taxes, it’s easier to set up a branch than a subsidiary. If it’s a subsidiary, taxpayers need to fill separate accounts and tax returns. If the company sets up a branch, it will reduce the overall cost. Both of them are located in a foreign country, and it’s important to follow the rules and laws of that country.
Word Cloud for Difference Between Branch and Subsidiary
The following is a collection of the most used terms in this article on Branch and Subsidiary. This should help in recalling related terms as used in this article at a later stage for you.