Branches: What are they and how do they differ from a subsidiary or a permanent establishment?

1.- Comparative Table

* Unless you collect the proper notes of a branch

Unfortunately, this quiz has a limited amount of entries it can recieve and has already reached that limit.

Time's up

2.- Branches: Characteristics

In Spanish law there is no definition of a branch beyond the provisions of article 295 of the Commercial Registry Regulation. This law introduces some characteristic notes for the purposes of its registration in the same registry.

These notes have been completed by the community regulations, jurisprudence and the (Regulator) “Dirección General de los Registros y del Notariado” (the Directorate General for Registers and Notaries/DGRN), so that we can define the branches as:

• A secondary establishment;
• Lacks its own legal personality;
• Has a permanent nature;
• Has the same corporate purpose as its holding company;
• Has its independent physical installation;
• Has operational autonomy;
• Has a permanent representative, who must have sufficient directive power to be in charge of the management;
• Follows to the guidelines of its holding company, although without autonomy over its assets.

In the words of the DGRN (May 16, 1959):

“A central establishment of local scope, belonging to the commercial entity that creates it, in relation of dependence or subordination with its governing bodies, which may develop the activity that constitutes the corporate objectives of the holding company.”

3.- Constitution

It should be noted, in advance, that the opening or setting up of a branch does not imply a constitution of a new company (As for subsidiaries to which we will refer to later).

Branches can be created by both commercial companies and individual entrepreneurs.

For its registration in the Commercial Registry, it is required that such constitution be made available for the public eyes.

Since it is not a new commercial entity, it will lack its own and different denomination from that corresponding to the holding entity; hence, it is necessary to add any identifying note that identifies the branch in the commercial traffic.

Overall, the branch’s domicile, activities, representatives, and authorities must be stated in the document of the constitution that had been made public (as well as in the corresponding inscription in the Commercial Register).

4.- Distinction of similar entities

Branches vs Subsidiaries

As we have anticipated, the main difference between branches and subsidiaries is that the former are not commercial companies. Consequently, the branches lack their own and distinctive legal personality from their holding entity.

On the other hand, the subsidiaries are authentic commercial companies, with their own legal personalities, capitals, bylaws, governing bodies and administration, etc.

From the above, we can infer a radical difference between the two:

The responsibility of the branch is not independent of the legal entity that creates it while, a priori, if there is such independence or autonomy in matters of responsibility between the holding company and the subsidiary.

Branches vs Permanent Establishments

There is also not a definition (from the commercial point of view) of the so-called permanent establishments. Thus, its configuration comes from the tax law (in order to avoid non-taxation of income obtained in Spain by non-residents).

We could say that every permanent establishment is a branch, in that it is a physical installation or work place where, in a habitual or continuous way, operations are carried out in a country in which the holding entity to which it belongs but does not have its residence.

Consequently, and as in the case of branches, permanent establishments lack their own legal personality, independence of responsibility, etc.

Now, not every permanent establishment can be seen as a branch. Bear in mind that to be seen as a branch, an independent internal management is required. Nevertheless, this circumstance does not have to concur with this concept.