Should establish a subsidiary or branch? Answering questions

Establishing a subsidiary or branch is an important decision for every business when it wants to expand its scale of operations. Choosing the appropriate form will directly affect the company’s business performance and development strategy. This article will analyze in detail the differences between subsidiaries and branches, thereby helping customers make optimal decisions.

What is a subsidiary? What is a branch?

Subsidiary: According to Clause 1, Article 195 of the Law on Enterprises 2020, a subsidiary is a company in which the parent company owns more than 50% of the charter capital or total common shares, or has the right to decide to appoint a majority of the members of the Board of Directors, Director/General Director, or has the right to decide to amend and supplement the Charter of the subsidiary.

Branch: A dependent unit of an enterprise, performing all or part of the enterprise’s functions, including the function of authorized representation. The branch’s business lines must be consistent with the enterprise’s business lines and lines.

Distinguish between subsidiaries and branches

Subsidiaries and branches have the following differences:

Advantages and disadvantages of subsidiaries and branches

A subsidiary or branch has different organizational structures, characteristics and entity status. Therefore, each of them has its own advantages and disadvantages. Below are the advantages and disadvantages of subsidiaries and branches.

Subsidiary company

Advantage:

• Helps expand business lines without affecting the parent company;
• Create favorable conditions for multi-sectoral and multi-sectoral activities; Easily manage revenue and expenditure, profits and increase competitiveness;
• Have legal status;
• Promote production and business activities of the parent company.

Disadvantages:

• The owner of the parent company is only responsible to the extent of capital contributed to the subsidiary;
• Subsidiary companies must pay corporate income tax before transferring profits to the parent company;
• Subsidiaries are not allowed to invest, buy shares or contribute capital to the parent company or other subsidiaries;
• The parent company has a lot of control over its subsidiaries.

Branch

Advantage:

• Established in many locations, helping customers conveniently transact;
• Have your own seal, creating trust for partners and customers;
• Can be accounted independently or dependent on the parent company.

Disadvantages:

• No legal status, just a dependent unit;
• The owner must be directly responsible before the law and partners when there is a dispute or debt;
• The owner must take full responsibility when the branch dissolves or goes bankrupt.

Should establish a subsidiary or branch

Whether to establish a subsidiary or branch will depend on the purpose of the business owner as well as the business situation of the business in each stage. Accordingly, based on the factors below, choose whether to establish a company or branch accordingly, ensuring effective business operations.

You should establish a subsidiary if:

• Enterprises operating in multiple industries or aiming to become multi-industry enterprises.
• Want to easily manage profits and costs in each area.
• Want to develop in-depth in each field, improve operational efficiency.
• Want to create internal competition, promote development and increase business efficiency.

You should establish a branch if:

• Enterprises want to expand markets in other provinces and cities.
• Want to increase profits and bring convenience to customers.

Consulting services and guidance on establishing subsidiaries and branches of Long Phan

Long Phan provides consulting services and guidance on establishing subsidiaries and branches, including:

• Consulting on choosing a subsidiary or branch suitable to the specific needs and situation of the business;
• Consulting on the characteristics of subsidiaries and branches;
• Consulting on conditions for establishing subsidiaries and branches;
• Consulting and guidance on drafting documents and registration procedures for establishing subsidiaries and branches;
• Consulting on tasks that need to be done after becoming a subsidiary and branch
• Representing customers to carry out establishment registration procedures and other related procedures;
• Consulting on tax, accounting, and management issues;
• Consulting and answering other related issues.

Choosing between establishing a subsidiary or branch is an important decision, affecting the development of the business. Customers should carefully consider factors such as business goals, operating industries, organizational structure, and legal responsibilities to make the most appropriate decision. Long Phan is always ready to support customers in the process of establishing and developing businesses. Contact the hotline now: 0906735386 for the best advice and support.