Difference Between Branch and Subsidiary

Main difference

The main difference between branch and subsidiary is that a branch is not an isolated legal entity but rather an expansion of the parent organization, while a subsidiary is a separate legal entity from its parent.

Branch vs. Subsidiary

Branches are not a corporation and are not separate from the parent corporation, and do not have their own legal entity, although they must be legally registered in the economic registry. Whereas subsidiaries are separate from the parent company and consequently have their legal entity and name different from the parent company.

In branches, liability is unlimited or unrestricted. The parent company compulsorily anticipates possible debts without limitation; it depends on the action of the branch, while with subsidiaries, the liability is limited to the parent company. This is so because they themselves can perform actions different from the actions performed by the parent company.

Branches will pay business tax or non-resident income tax; On the other hand, subsidiaries are subject to the law of the state where they are located. In the branch, the responsibilities extend to the parent company while in the subsidiaries the responsibilities are limited.

The branches have combined preservation of their finances, while the subsidiaries preserve their isolated finances. The assets of a branch are 100% owned by the parent company, while for a subsidiary it is more than 50% wholly owned. If a branch fails to earn revenue, it may close, while if a subsidiary fails to earn its intended profits, it may be sold.

Comparison chart

Branch Subsidiary
The branch implies a framework of launch or establishment to a parent or parent company, to carry out the same occupational processes, in a different location. Subsidiary establishment is understood as the business whose total or partial controlling interest is held by another establishment.
Business
Branch offers a business equal to that of a holding company. A subsidiary, whether or not it has the same business as a parent organization.
reports to
Main office Holding company
passive
It extends to the parent company. It was restricted to the subsidiary.
property interest
The parent association has a 100% ownership interest in the branch. The parent association has >50-100% ownership interest in the subsidiary.
Separate legal status
No Yes
Account Maintenance
Either individually or jointly Individually

What is Branch?

A branch is a site or place, other than the headquarters, where business is conducted. The maximum branches include a smaller division of the changed characteristics of the business, such as personnel resources, advertising, accounting, etc. A branch office will generally have a controller who will report directly to and execute the orders of an association that is part or a member of the head office.

Branch offices are beneficial because they allow many of the client-specific administrative deliberations to take place close to the clients. Many clients may favor a resident representative that they can go to quite freely. A branch can include a particular description or can be associated with many people based on business requirements.

There is no global model that can adopt a branch format, but many are positioned based on physical need. In more populated areas, it is not surprising to see several branches surrounded by close proximity to each other. Most of the banks, financial organizations, restaurant chains and others have branches that are beginning to play the role of organization.

The creation of branches in various peripheral areas increases the client portfolio, availability and also time assistance and efficient supply of goods and services. Meanwhile, a branch is not a single legal entity and its legal responsibility extends to the parent company.

What is a subsidiary?

In the business community, a subsidiary is an establishment that refers to another company, which is usually called a holding company. The holding company captures a controlling concern in the subsidiary, which means that it has to control the rest of the shares or half of its stock or inventory.

When a subsidiary is 100% endowed or has control of another company, the subsidiary is known as a wholly owned subsidiary. A parent or holding company buys or starts a subsidiary to deliver the parent company with defined contributions, such as higher tax profits, various risks, or resources in the form of income, equipment, or possessions.

Subsidiaries are legal entities isolated and separate from their parent companies, which mimics the individuality of their responsibility, taxes and authority. If a holding company maintains a subsidiary in a new state, the subsidiary must comply with the laws and regulations of the state where it is incorporated and operates. A subsidiary generally makes separate tax returns.

Key differences

  1. A branch is an addition of the parent or holding company opened to carry out the same business structure as the parent company. On the other hand, a Subsidiary is a company where the parent company retains the majority of the shares, thus having a majority stake.
  2. The Branch may carry out or execute the same commercial procedures as the Headquarters. On the contrary, the subsidiary may or may not carry out the same commercial procedures as the parent company.
  3. As for the branches, they may have a common or different care or maintenance of the tax records, while the subsidiaries keep their tax records isolated or separate.
  4. A branch does not have a discrete legal or permitted entity, while a subsidiary is a discrete legal entity and has a different medium from its parent company.
  5. If a branch repeatedly suffers loss or damage, it is sealed or shut down, while if a subsidiary is tilted to loss, another corporation is terminated or depleted.
  6. The accountability or responsibilities of the branch extends to the parent company, that is, when the branch is unable to render accounts, it must be paid by the head office. In contrast, the responsibility of a subsidiary does not extend to the holding company.

Final Thought

In summary, fundamentally the branches must extend the perception of the client, while a subsidiary concern is the extension of the business entity.

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