Business Structures Suitable for Extending a Company Abroad
Expanding a business to one or more foreign countries has the potential to grow a business and presents both new opportunities and challenges, as the company will need to adapt to a different corporate regime in a new country. Investors can explore the most viable expansion methods in a chosen jurisdiction and they can also reach out to a team of company formation agents once they know the country they want to set up in. In this article, we present two business structures that are suitable for extending a company abroad.
The branch as an extension of the parent company
Companies incorporated in other jurisdictions that wish to expand their business into new countries can open a branch. This is done instead of following through with the process of opening a new company and it is often seen as more efficient in terms of incorporating time and also in terms of reporting and taxation (because the branch is only taxed on the profits it produces in the country where it is established).
Unlike a locally registered company, the branch is not a separate legal structure from the parent company abroad. This is why the foreign corporation will be liable for its branch’s debts and obligations.
The branch is a preferred expansion method for banks and other financial services companies. By expanding through a branch, a company can be present in several countries. For example, companies can open a branch in Singapore and the explore expanding further.
Investors can find relevant information on the requirements to open a branch and the registration method on the Government websites. Hong Kong is another preferred jurisdiction in Asia where many international companies open branches and investors can find it reliable to verify the official governmental information on branch registration in Hong Kong.
The subsidiary, a separate legal entity
The subsidiary is essentially an incorporated company, governed by the relevant company laws in the chosen jurisdiction. In general, corporations take one of two forms, the private limited liability company, and the public limited liability company.
Some countries have very attractive company formation regimes. Investors who open a company in Ireland, for example, will enjoy low taxes and a simple company registration procedure. The company formation requirements will differ from one country to the other, however, in general, the procedure will require the investor to select (and reserve) a unique company name, open a bank account in the country and draw up the Memorandum and Articles of Association.
Investors interested in extending their company in the Netherlands and in moving some of their employees in that country should ask for specialized legal assistance from an immigration attorney in the Netherlands.
Opening a branch or a subsidiary will depend not only on the foreign company’s business expansion plans but also on the business activities. For some types of businesses, like clinics that offer affordable hair transplant services, it may be more suitable to incorporate a company, thus allowing that business to have complete operational flexibility on a given market and not be legally perceived as an extension of the parent company with no legal capacity.
Foreign companies that wish to do business in the UK are also required to register and follow the filing obligations. More information on this topic can be found in this guide on overseas company registration.
Both the branch and the subsidiary will be subject to specific laws and regulations in the new place of business. Some of these will include corporate taxation (on the worldwide income for the subsidiary and on the country-specific income for the branch), restrictions when using corporate names, the requirements for annual accounting and filing obligations (lighter in case of the branch) and others.
Opening a secondary establishment for a business opens new opportunities, increases the client range and yields more revenue for the company. Choosing between opening a branch or a subsidiary as a means of expanding to a new country is a business decision for which taking advice is much recommended as requirements differ from one country to another.
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