What is the Difference Between Branch and Subsidiary?
🆚 Go to Comparative Table 🆚The main differences between a branch and a subsidiary are:
- Legal Entity: A subsidiary is a separate legal entity that is fully or partially held by another company, while a branch is an extension of the parent company and does not have a distinct legal personality from the head office.
- Ownership Stakes: A branch has 100% ownership stakes in its parent company, whereas a subsidiary has an ownership stake greater than 50%, with 100% ownership referred to as a wholly-owned subsidiary.
- Business Operations: A branch operates the same functions as the head office and acts as an extension of the company in a different location, while subsidiaries are not bound to carry out the same operations as the parent or holding company and may or may not carry the same functions.
- Reporting Hierarchy: In a branch, the parent organization hands the responsibility and instructions to the branch manager, who reports directly to the head office. However, a subsidiary company is accountable to the holding or parent company.
- Liability: A branch's liability extends to its parent company, whereas a subsidiary is liable on its own.
- Resources and Systems: A branch uses the resources and systems used by the company it belongs to, while a subsidiary can also use its own operating systems and resources.
- Investment: Investment for a branch is 100% from the parent company, whereas a subsidiary has its own investment.
In summary, a branch is an extension of an existing company and does not have a distinct legal personality, while a subsidiary is an independent legal entity with its own juridical status, management, and board of directors. The reasons for setting up a branch or subsidiary depend on the specific needs of the business, such as expanding coverage, administration, and distribution of goods and services to customers.
Comparative Table: Branch vs Subsidiary
Here is a table highlighting the differences between a branch and a subsidiary:
Feature | Branch | Subsidiary |
---|---|---|
Legal Standing | No separate legal standing | Separate legal entity |
Ownership | 100% owned by the parent company | Ownership greater than 50%, up to 100% |
Operations | Conducts the same business as the parent company | May or may not conduct the same business as the parent company |
Reporting | Reports to the parent company | Reports to the parent or holding company |
Resources and Systems | Uses the resources and systems of the parent company | Can use the resources and systems of the parent company or its own |
Branding | Shares the same brand as the parent company | May or may not share the same brand as the parent company |
Accounts | Accounts may be maintained jointly with the parent company or separately | Separate accounts |
Liabilities | Liabilities extend to the parent company | Liabilities are limited to the subsidiary |
A branch is an extension of the parent company and does not have separate legal standing, while a subsidiary is a separate legal entity with its own identity. A branch conducts the same business as the parent company and uses its resources and systems, while a subsidiary may or may not carry out the same operations and can have its own resources, systems, and branding. The parent company has 100% ownership interest in a branch, whereas it has greater than 50% ownership interest in a subsidiary. Liabilities of a branch extend to the parent company, while those of a subsidiary are limited to the subsidiary itself.
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