sz sa5eu sein Ub onl rnc, Sune [Pro Care 993 NEAI Report (GOWRLOAD THEREPORD ynHall Names G-P @ Global EOR Services % 21(888)-855-5328 Setting Up An International Branch Vs. Subsidiary fa September 19, 2019 " a pon© Reading Time: 10 minutes Setting Up An Intérnationall Branch vs..a Foreign. Subsi@iary If your company is looking at foreign markets for business expansion, one of the most important questions you need to ask yourself is whether you want to ,. How you answer the question depends on the opportunities you perceive in a new market as well as your appetite for regulatory and cultural challenges in a new country. pm goneleston samercontinjoveaae rancho earch «,comacted hse organeaon anesz s25eu ‘Seting Up An ramon ranch, ein Pr & Core ‘While some business challenges remain the same no matter where you are located, other challenges are very specific to a given country. Some of the questions your company may need to answer include: Do you first need to create a legal entity in that country? What are the visa requirements? What about work permits and residency permits for employees? If you follow all the rules and regulations of a foreign country, how long will it take before your company is able to legally do business? ‘After thinking through those questions, you can then ask yourself: Should we open a branch or a subsidiary? Global Expansion without branches or subsidiaries pss eonzaor sumer combina rachrag-ibiansz s25eu ‘Seting Up An ramon ranch, ein Pr & Core 3 Organization Owns 100% of the Liabil 1 Organization Has No Liability for the Subsidiary ‘Lita Subsidiary Loses Money, tts Often Sold to Anather Company, What Are the Pros and Cone of Operating Either a Branch Office or Subsidiary? ros of Operating a Branch 1.8 Paront Organization Maintains a Greater Lovel of Control Over a Branch Office 2.8 Branch Office Is Mostly Governed by the Laws and Rules of the Country Where ts Parent Company's Head Office Is Located B.lt Costs Less to Establish a Branch Office 4A Branch Office Offers the Parent Company Greater Tax Benefits 5,A Branch Office Is the Simplest Form a Business Can Take to Expand its Oppartunition ros of Having a Subsictary 8.,A Subsidiary Is More Flexible Than a Branch 4. A Subsidiary Can Exolere More Economic Opportunities in a Foreign Country. 5.8 Subsiciary May Be Able to Take Advantage of Cost Efficiencies ina Foreign Country 6..A Subeiciary Offers Greator Liability Protection forthe Parent Organization es eonzaon samer combina rach-ralge-sibiay, arch comedy heparan gaiaon ousz s25eu ‘Sein Ub As What Are the Problems with Opening a Branch or Subsidiary? (Cons of Opening a Branch rl nc Ve, Soudan |r Care 1A. Branch Office Makes It More Difficult forthe Parent Organization to Explore New Business Ooportunitios 2.if the Branch Office incurs Debts or Suffers Legal Problems, the Parent Organization Is Liable Finding Emplavaas for the Branch (Cons of Opening a Subsiciary 1.8 Subsidiary Coste More to Establish and Open 8. Costs Can Be High If Thre Ave Probloms Let Globalization Partners Help You Establish a Prosonce in a Foreign Country What Is the Difference Between a Branch and a Sub: lary? When deciding whether your company wants to open a branch versus a subsidiary in a foreign country, you need to decide ‘what your primary business interest will be, what your goals for the branch or subsidiary will be and how you will handle questions of taxation and lability. We'll provide a primer below, but here's a short breakdown of the difference between a branch and a subsidiary. eps leonzaon sumer combs rach-age-sibay, arch coed he, sarenogaiaon se‘Seting Up An ramon ranch, ein Pr & Core es eonzaon sumer combina rachag-subiay, arch comedy heparan ogaiaonsz s25eu ‘Sein Ub As rl nc Ve, Soudan |r Care 1. A Branch Is Connected to the Parent Organization ‘Abranch is created by the parent company to perform more or less the same business as the parent company, but at a different location. A good example would be bank branches in the United States. Well-known banking companies such a Fargo, BB&, or TD Bank have branches set up across the country that all engage in the same business as the parent company, which, in this ease, is banking, es eonzaon sumer combina rachag-subiay, arch comedy heparan ogaiaonsz s25eu ‘Seting Up An ramon rnc, Suir Pr & Core 2. A Branch Office Reports to the Head Office All branches are ultimately responsible to their head offices and report ail their important data and information to the head office, 8, A Branch Office Normally Maintains Joint Accounts with the Head Office Ina branch office, account maintenance can be done separately or jointly, although in most cases it is done jointly with the head office. 4, A Branch Office Is Completely Controlled by the Parent Company ‘Apparent company will always have 100% ownership of a branch office, Whether the branch office isin the United States or in a foreign country, there are no partnerships or joint ownerships of a branch office. 5. The Parent Organization Owns 100% of the Liability of the Branch Office Ifa branch office is involved in a lawsuit or litigation of any kind, that means the lability extends to the parent organization So, if'a branch can't discharge its lablities, any fines, settlements, or charges will need to be paid by the parent company. A -—) branch office does not have a separate legal identity pss loner sumer combina rach agian ousz s25eu ‘Sein Up An ramon ranch, ein Pros & Core 6. If a Branch Office Loses Money, it is Closed If the parent organization opens a branch office in a foreign country and discovers that it is losing money or that its chance of being profitable in the future is sim, it can close the office. The individual in charge of a branch is known as the branch manager. While they are directly responsible for the activities of the branch, they take instructions from and report to the head office, A subsidiary generally operates based on the following: 1. A Subsidiary Is Ultimately Owned by the Parent Company but Operates as a Separate Entity ‘A subsidiary company is an entity where the controlling interest is either totally or partially held by another company, often known as the holding company. In that case, the parent company either has a total or a majority ownership stake. 2. The Subsidiary Reports to the Holding Company A.subsidiary, unlike a branch office, does not report to the parent organization. Instead, it reports to the holding company that controls it. pst loner sumer combina rach-rag-ubian ausz s25eu ‘Seting Up Anam rnc, ein Pros & Core 3. In Most Cases, a Subsidiary Will Not Perform the Same Business as the Parent Company ‘Sometimes a subsiciary will conduct the exact same business as the parent company. At other times, however, it may engage in businesses that are totaly different from what the parent organization does. For instance, if the parent company is involved in the oll business, a subsidiary may work in retail or in telecommunications. 4. A Subsidiary Maintains Its Accounts Separately from the Parent Organization The subsidiary does not maintain its accounts with the parent organization. Instead, itis solely responsible for maintaining accounts on its own. 5. The Parent Organization Has a 51% to 100% Ownership Stake in the Subsidiary (Ownership stakes in a subsidiary depend upon the regulations of each individual country. For instance, in Sauci Arabia, a subsidiary can be 100% owned by a foreign company. Other countrias, however, may require a local ownership stake in any subsidiary. In Algeria, a foreign-owned import business must include at least a 30% Algerian ownership of that entity 6. The Parent Organization Has No Liability for the Subsidiary If a subsidiary in a foreign country is involved in any kind of litigation, any liability is imited solely to the subsidiary and does not involve the parent organization. A subsidiary has a separate legal identity from the parent organization. pst loner sumer combina rach-rag-ubian teesz s25eu ‘Sein Up An aman ranch, ein Pr & Core 7. If a Subsidiary Loses Money, It Is Often Sold to Another Company Unlike a branch, which closes if it loses money, if @ subsidiary fails to turn a profit or does not look like it can sustain a profitable future, it is usually sold to another company within that foreign country. Global Expansion without branches or subsidiaries What Are the Pros and Cons of Operating Either a Branch Office or Subsidiary? ‘So what are some of the pros and the cons of operating either a branch or a subsidiary in a foreign country? Either operation offers the parent organization different benefits as different challenges. As we noted above, ultimately the parent organization needs to make a choice between a branch or a subsidiary based on what they hope that particular business: ‘operation will accomplish eps leonzaon sumer combs rach-age-sibay, arch coed he, sarenogaiaon oosa, ea8eu etn tamara ne Ve, bry rt Cane Pros of Operating a Branch es eonzaon sumer combina rachag-subiay, arch comedy heparan ogaiaonPros & Cons of a Pros LoCT iT} eases Cae) Seay encase ier) orate Tee el a Branch Office Governed by the Laws ices areca Branch Office Debt or Legal It Costs Less to Establish ea ice a seu acs Oe oe erence Boda Sea uae uysz sa5eu ‘Seting Up An ramon ranch, Suir Pr & Core 4. A Parent Organization Maintains a Greater Level of Control Over a Branch Office Since @ branch office reports to the parent organization and receives all its instructions from it, the parent company has a much greater role in the decision-making process, 2. A Branch Office Is Mostly Governed by the Laws and Rules of the Country Where Its Parent Company's Head Office Is Located While there will always be some local rules and regulations that a branch office will need to follow when located in a foreign country, these will have a limited effect on a branch office. This means the parent organization can more effectively manage the branch. 3. It Costs Less to Establish a Branch Office Once a parent company receives permission to open a branch office in a foreign country, itis a much easier and cheaper process to get it up and running. For instance, a branch office does not have to spend time negotiating a local ownership stake, and in many cases, its overhead costs comprise renting office space and paying for staff. 4. A Branch Office Offers the Parent Company Greater Tax Benefits In most cases, the revenue earned by a branch office will be handled by tax treaties signed between the company where the parent organization is located and the country where the branch office is located. These treaties eliminate double taxation. So, if the branch office needs to pay taxes in the foreign country, these taxes are counted toward the parent company’s tax bil in the United States. pss loner sumer combina rach agian teusz sa5eu ‘Sein Up An ramon rnc, ued Pr & Core 5. A Branch Office Is the Simplest Form a Business Can Take to Expand Its Opportunities The branch office is the simplest and safest way for a company to expand its brand to a foreign country and to explore new markets and other places, pst loner sumer combina rach-rag-ubian sePros of Having a Subsidiary pss loner sumer combina rach agian ‘Seting Up An ramon ranch, ein Pr & Core‘Seting Up An ramon ranch, ein Pr & Core es eonzaon sumer combina rachag-subiay, arch comedy heparan ogaiaonsz sa5eu ‘Seting Up An ramon ranch, ein Pr & Core 1. Subsidiaries Are Independent of Their Parent Organization Since @ subsidiary ina foreign country is a separate legal entity, this makes it easier for them to conduct business, to form partnerships, and to explore new markets. 2. A Subsidiary Adds Greater Credibility to the Parent Organization In many cases, service providers and banks in foreign countries are happier doing business with a subsidiary for both legal and financial reasons. 3. A Subsidiary Is More Flexible Than a Branch A subsidiary enjoys a greater degree of flexibility because it can issue or transfer shares to third parties like investors, partners, ‘employees, or venture capitalists. Since a subsidiary can be listed on the stock exchange, it can also issue public stocks or bonds, 4. A Subsidiary Can Explore More Economic Opportunities in a Foreign Country While a branch basically conducts business similar to its parent organization, a subsidiary can explore new economic realit a foreign country. So, while the branch office of a retail organization will primarily stick to retal, a subsidiary might be interested in exploring the pharmaceutical market in the same country, pss loner sumer combina rach agian eaesz sa5eu ‘Seting Up Anam rnc, ein Pr & Core 5. A Subsidiary May Be Able to Take Advantage of Cost Efficiencies in a Foreign Country ‘A parent organization that opens a foreign subsidiary in another country is often able to take advantage of the country's labor and manufacturing costs. 6. A Subsidiary Offers Greater Liability Protection for the Parent Organization Since a subsidiary has a separate legal identity, it otfers greater legal protection for shareholders of the parent organization ‘who will have no liability if the subsiciary falls into det or suffers legal problems. What Are the Problems with Opening a Branch or Subsidiary? While these may seem lke attractive incentives, opening an overseas branch or a foreign subsidiary also has its share of challenges and issues. While opening a branch or subsidiary in some countries is relatively straightforward, other countries have complex legal requirements and labor laws that can significantly delay a parent organization's desite to enter a new market. pss loner sumer combina rach agiansa, ea8eu etn tamara ne Ve, bry rt Cane Cons of Opening a Branch es eonzaon sumer combina rachag-subiay, arch comedy heparan ogaiaon‘Seting Up An ramon ranch, ein Pr & Core eps leonzaon sumer combs rach-age-sibay, arch coed he, sarenogaiaonsz s25eu ‘Sein Up An rama rnc, ur Pr & Core 1. A Branch Office Makes It More Difficult for the Parent Organization to Explore New Business Opportunities Since a branch office is largely restricted to the activities of the parent organization, this makes it more difficult to expand into other potentially profitable areas. 2. If the Branch Office Incurs Debts or Suffers Legal Problems, the Parent Organization Is Liable Unlike a subsidiary, a parent organization is 100% lable for any debts, fines, or legal settlements that a branch office is obligated to pay. It also places the shareholders of the parent company at risk. 3. Finding Employees for the Branch Depending on a foreign country's labor laws, it can often be more difficult to bring in workers from the United States to work in a foreign country. Visa requirements and work permits can often be difficult to obtain, and a loranch office may only be allowed to employ a certain number of foreign workers due to quotas. pss loner sumer combina rach agian auCons of Opening a Subsidiary pssmgoonason semerscontinjovenaae rancho ‘Seting Up An ramon ranch, ein Pr & Core‘Seting Up An ramon ranch, ein Pr & Core es eonzaon sumer combina rachag-subiay, arch comedy heparan ogaiaonsz s25eu ‘Sein Ub As lec Vi, Sein Pr Care 1. A Subsidiary Costs More to Establish and Open ‘As we noted above, a branch office often only requires office space. A subsidiary, on the other hand, may require manufacturing facilities and face more complex legal issues such as local ownership and how a subsidiary is taxed. It is important for the parent company to do its financial due dligence when considering opening a subsidiary. 2. A Subsidiary Faces Regulatory and Cultural Challenges in a Foreign Country While a branch office faces some of the same issues because it is mostly controlled by the parent organization in the host country, these issues are not as onerous. A subsidiary, however, operates solely in a foreign country. This means any parent organization that wishes to open a subsidiary must carefully study the cultural, political and regulatory environments in that foreign country. This is actually a strong argument for some percentage of local ownership in a subsidiary. Owners who live in the foreign country can help the parent organization better understand how the country works. 3. Costs Can Be High If There Are Problems If a branch office proved troublesome, the parent organization can just close it. I a subsidiary proves to be a problom in terms. of profit or revenuo, there are much more intricate logal and financial questions involved. Often a money-losing subsidiary will be sold to another company in the foreign country, and this could result in complex and costly legal and financial negotiatigy— eps leonzaon sumer combs rach-age-sibay, arch coed he, sarenogaiaon asz s25eu ‘Seting Up An ramon ranch, ein Pr & Core Let Globalization Partners Help You Establish a Presence ii Foreign Country — Deciding between a branch office and a subsidiary in a foreign country can be a complex and difficult issue, particularly it ‘you're interested in expanding into another market as quickly as possible. It not only takes time for your operation to decide how it would lke to be represented in a foreign country, but then it also takes time to research and understand the laws, rules, and customs of the country does business. es eonzaon sumer combina rachag-subiay, arch comedy heparan ogaiaon aasz s25eu ‘Sein Ub As There is a simpler and faster way. rl nc Ve, Soudan |r Care If you don't have the time to understand the cultural, political, rules, and laws that govern doing business in a foreign country but you still want to expand into that country and you have a team all ready to go, trust Globalization Partners. ‘Through our Global PEO and Employer of Record model, we combine first-rate international HR and legal expertise. We use our in-house infrastructure to help companies hire teams in over 170 countries without having to first set up a subsidiary or branch office, If you would like to find out more about what we can do for your company in a foreign market, request a proposal or contact us, A member of our experienced and knowledgeable team will got back to you as quickly as possible. For more information on how to successfully expand your business intemationally and an overview of the correct steps involved, be sure to read our guide on How to Scale Globally Without Sinking, viewable here: eps leonzaon sumer combs rach-age-sibay, arch coed he, sarenogaiaon ainsz sa5eu Sein Up An rama ranch, unin Pr & Core Enjoyed reading this blog? Save it for future reference 1B DOWNLOAD PDF G-P. Global Made Possible. wth Platform™ helps companies unlock their full potential by building highly skiled ‘eams in minutes instead 0 sm oozaton seer colle rach rage-suba_, arch, eect fh am‘Seting Up An ramon ranch, ein Pr & Core eps leonzaon sumer combs rach-age-sibay, arch coed he, sarenogaiaonsz s25eu ‘Seting Up An ramon ranch, ein Pr & Core Related Posts Ee Exlore Global Expansion ‘Explore Global Expansion ‘Hinace Comolance Expanding Your CFOs: Establishing a oe Doing Business in Business to the Te n < Grea oak Brazil: 7 Things You Emirates Business Expansion ‘Should Know eps leonzaon sumer combs rach-age-sibay, arch coed he, sarenogaiaon somUSS. companies looking to expand internationally have been considering the United ‘Arab Emirates (UAE) a key destination for some time now. ‘And for good reason, Get in touch with us Certification pss loner sumer combina rach agian ‘Seting Up An ramon ranch, ein Pr & Core ‘The following is excerpted When doing business in Brazil, {from “Meeting the Challenges itis crucial to have detailed of International Expansion: knowledge of the local (CFO Best Practices for environment. 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