Difference between branch, permanent establishment and subsidiary

26 September, 2017
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Commercial
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Mara Vilanova


In this post we will look at the differences between a branch, a subsidiary and a permanent establishment, which can often be confused and used colloquially as equal figures, but have clearly differentiated characteristics.

BRANCH OFFICE

When we talk about a branch, we are talking about a secondary establishment or accessory to the main one, but with permanent representation and some autonomy of management through which the activities of the company are carried out, in whole or in part. They are subordinated to the main establishment, both in the economic and legal aspects, so they must collaborate in the achievement of the corporate purpose. It’s noteworthy that they do not have a legal personality, so it is always accessory to the main company without being able to speak of a different or legally independent society. The liability of the branch is therefore not independent of that of the parent company, and the creditors of the branch may be directed against the principal directly.

PERMANENT ESTABLISHMENT

This is a figure that does not appear in commercial law but has been created by tax regulations to tax the income obtained in Spain by certain non-resident companies. It is a company without its own legal personality that carries out merely accessory, auxiliary or instrumental activities.

Although the branch is defined by a physical note (independent installation) and another legal (autonomy of management) permanent establishment is only identified by its physical nature (installation or place where operations are performed in a territory where the company does not reside). Therefore, we can say that the concept of a branch will always include the one of permanent establishment, but not the other way around, since not every permanent establishment can be understood as a branch with its own autonomy. As an example, imagine a foreign company that wants to promote the sale of its products in Spain, promote and carry out marketing and sales activities to customers in Spain, and for this purpose rent an office so that from here you can carry out these activities.

FILIAL

Finally, in relation to the subsidiary/filial, it is formed as an independent company of the parent company and, therefore, unlike the branch, it does have its own legal personality. The subsidiary is a company that can be formed under any legal form that allows the legislation of the country where it is formed (in the case of Spain for example a SL, SA or any other except for those that do not pursue a lucrative purpose) and which therefore have true legal autonomy, capital, by-laws and bodies, and may even have a social purpose different from that of the parent company. In any case, the important thing is that these are independent companies that have their own responsibility and therefore answer to their own creditors.

However, subsidiary companies are entities that, despite being independent, are subject to the control of another company that we call the parent company, that is, the subsidiary is controlled by the parent company that holds all or most of the parent company. Its holdings and / or shares and is therefore in control of it. It is an independent legal company, which operates independently, but has a shareholder relationship with the parent who has control over it. A well-known case would be, for example, the well-known Spanish company INDITEX S.A, which has established multiple subsidiaries around the world, as well as in Spain, such as STRADIVARIUS ESPAÑA S.A, ZARA ESPAÑA S.A or PULL & BEAR ESPAÑA S.A.

So, after seeing the differences of these figures, while wanting to expand our business geographically, we will have to evaluate which one fits and adapts most to the project that we want to develop.

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