Opening a branch is one way to expand a business. It is a step that requires careful consideration, planning, and a thorough understanding of the particularities of this business form. The branch is, essentially, an extension of the parent company, thus it will be dependent to it and similar in many ways. We present a general guide to starting a branch office.
The advantages of the branch
The branch is the preferred expansion manner for many types of businesses. While it remains common in case of banks, for example, foreign companies can successfully enter the Vietnamese market, as well as other markets such as Singapore by opening a branch.
The main advantages of the branch are the following:
- lower capital: the branch will demand a lower initial capital compared to a company that is a resident in the chosen jurisdiction.
- complete control: a foreign company that opens a branch in Montenegro, for example, will control its branches activities completely.
- simpler registration: branch registration is mandatory with the local Trade Register, however, the process is simpler because the branch itself does not have Articles of Association.
The winding up of a branch is also generally simpler than closing a company.
Issues to keep in mind when opening a branch
While the branch is usually subject to a simpler set up process, investors should remember that:
- it has a limited scope: the branch can only engage in the exact same activities as the parent company.
- it has the same name: the branch will have the same name as the foreign company.
- the parent company is liable: the foreign company that opens a branch in Vietnam or a branch in the Isle of Man will be liable for all of its debts incurred in that jurisdiction.
- it has a representative: the foreign company will appoint a local branch representative in the country where it decides to open the branch.
When registering the branch, the foreign company will need to provide copies of its Articles of Association and its business registration license as well as the Board Decision to open the branch and the Board Decision for the appointment of the branch representative. Other required documents will include the representative’s identification documents and proof of payment for any required fees.
The branch is suitable for investments or businesses that have a low risk, as the parent company will be liable for any debts and obligations. It is a suitable manner to expand to a new market and it can offer advantages in terms of taxation, simplified accounting and control on the part of the parent company.
