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What’s the difference between a branch and a subsidiary?

Whereas a branch is an extension of a company, a subsidiary is a legal entity in its own right. In the UK the term branch has been superseded by the term “permanent establishment”

A Limited Liability Company incorporated in Northern Ireland may wish to establish a branch in Ireland. This is facilitated under European Law which requires that certain filings must be made by the Northern Ireland Company with the Companies Office in Ireland. It is important to bear in mind that a “branch” in legal terms only applies to Corporations e.g. limited liability companies. So, for instance, a Partnership or a sole trader would not in the legal sense establish a “branch” across the Border. Therefore, it is only in the context of Corporations that there is a requirement for filing information and details with the Companies Office in Ireland. From a legal viewpoint a branch is not a separate legal entity from the Company that established that branch. To take an example, we could have a Northern Ireland incorporated Company with a branch Office in Dublin. The legal entity doing business in Dublin is the Northern Ireland Company. It just happens to have an office in Dublin.

On the other hand, a subsidiary is a completely separate legal entity from the parent company. Once again, subsidiaries only apply to Corporations, e.g. Limited Liability Companies, as opposed to sole traders or partnerships. To take an example, Company A is established and trades in Northern Ireland and decides to set up a new business in Dublin. Rather than merely establish a branch, they decide to establish a separate Irish Company to conduct the business on their behalf. In the normal course the new Company, NewCo, is incorporated in Ireland but its shareholder is Company A. As such, Company A owns all of NewCo.. The important legal distinction is that the business being conducted in Ireland is conducted by NewCo and if a legal dispute arose in respect of the conduct of the business then it is NewCo that will be involved in the legal proceedings, not Company A. Therefore, in terms of limiting the risk for the parent company in establishing a new business in a foreign jurisdiction, there may well be practical reasons to use a subsidiary as opposed to a branch. If a Company merely has a branch the Company itself is exposed to all legal liability for the actions of the foreign branch and losses accumulated by that branch. By having a separate Company (subsidiary) such risks and losses can be limited to that Subsidiary and ordinarily the Parent Company should be protected. It should be noted, however, that the decision whether to establish a branch or a subsidiary tends to be primarily informed by the tax implications.