A branch office is an intermediate form between a company with its own legal personality and a purely permanent establishment. It is to a certain extent dependent on the company of the head office, but on the other hand, the branch office takes part in business dealings independently.
The legal provisions of the branch office are defined in §§ 13 et seqq. HGB (German code of commercial law). The legislator deliberately refrained from defining the term branch office. However, it is generally described as an establishment separate from the head office, which carries out its own legal transactions for a temporary purpose – within the scope of the business activities of the head office – with a certain degree of organizational and factual independence vis-à-vis the outside business world. Despite this commercial independence, the branch office does not have the status of a legal entity and therefore cannot itself be the carrier of rights and obligations. In this respect, it represents a part of the company dependent on the head office without its own legal personality. It is therefore subject to the (foreign) law applicable to the head office.
The branch office must be organized in such a way that it could continue to exist if the head office were to disappear. To be independent, it must have its own management with freedom of disposition and its own business assets allocated by the main branch. In the head office’s balance sheet, the branch office’s business transactions are listed separately.
For a branch office to exist, it is sufficient that it is correctly established. However, it must be entered in the commercial register, whereby only German law applies to the registration procedure. However, an entry in the commercial register has only a declaratory effect.
Advantages of the Branch Office
- Independent business activity
- It is subject to the law of the head office from a legal and organizational point of view,
- As a result, there may be less need for legal advice.
- Low economic efforts: Although the legal status of an independent branch office requires its own capital resources, no minimum share capital is required.
- High bureaucratic burden: Commercial register entry and business registration are necessary.
- The trade name is basically the same as that of the head office but can be extended by a clarifying addition (e.g. “Zweigniederlassung Deutschland”).
- Only suitable for longer-term commitments.