Let’s say you’ve registered your business and it is doing really well. Now you’re looking into potential growth opportunities. You could be interested in expanding but don’t know which corporate structure is suitable for your operations. This article will identify two options: branches and subsidiaries.
A branch is an extension of the parent organisation. Set up at a different location to increase customer reach, accessibility and help with the distribution of the business’ goods and services. This new location will carry out the same operations as the head office. Therefore directly reports to and receives instructions from headquarters.
- Example – Event Cinemas has multiple branches (locations) throughout Australia however report back to their parent company, Event Entertainment.
A subsidiary is a business entity whose control and ownership is handled by another business enterprise. You can read more about What is a Subsidiary Company.
The Corporations Act 2001 (Cth) section 46 outlines the requirements as followed:
- Holding (parent) company controls the composition of the subsidiary’s board
- Parent company controls greater than 50% number of votes in a general meeting of the subsidiary’s board
- Parent company holds more than 50% of the issued share capital of the subsidiary company.
- Example – Event Hospitality & Entertainment Limited (EVENT) is the parent company with subsidiaries in Event Entertainment and Event Hospitality. With each subsidiary having its own different brands like Event Cinemas.
The key differences between a branch and a subsidiary are:
- Branch is running the same operations as head office whereas a subsidiary company is purely reporting to the holding company.
- A branch has no separate legal standing whereas a subsidiary company is a completely separate legal entity with a different identity.
- A branch’s liability extends to its parent company whereas for a subsidiary it does not extend to the holding company.
- Branches have joint maintenance of their financials whereas subsidiaries maintain their own separate financials.
- Investment for a branch is 100% from the parent company whereas for a subsidiary it is purely ownership greater than 50%.
Essentially branches are to expand the customer penetration whereas a subsidiary company is for the expansion of the business entity. If these are to be opened in a foreign country then it is required to follow that country’s rules and regulations.
Opening a branch or subsidiary company is complex and requires legal advice from a commercial lawyer. There are obvious differences and it would be advised to review these options before pursuing an avenue.
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