What is the Difference Between Branch and Subsidiary?

The main differences between a branch and a subsidiary are:

1. Legal Entity: A subsidiary is a separate legal entity that is fully or partially held by another company, while a branch is an extension of the parent company and does not have a distinct legal personality from the head office.
2. Ownership Stakes: A branch has 100% ownership stakes in its parent company, whereas a subsidiary has an ownership stake greater than 50%, with 100% ownership referred to as a wholly-owned subsidiary.
3. Business Operations: A branch operates the same functions as the head office and acts as an extension of the company in a different location, while subsidiaries are not bound to carry out the same operations as the parent or holding company and may or may not carry the same functions.
4. Reporting Hierarchy: In a branch, the parent organization hands the responsibility and instructions to the branch manager, who reports directly to the head office. However, a subsidiary company is accountable to the holding or parent company.
5. Liability: A branch's liability extends to its parent company, whereas a subsidiary is liable on its own.
6. Resources and Systems: A branch uses the resources and systems used by the company it belongs to, while a subsidiary can also use its own operating systems and resources.
7. Investment: Investment for a branch is 100% from the parent company, whereas a subsidiary has its own investment.

In summary, a branch is an extension of an existing company and does not have a distinct legal personality, while a subsidiary is an independent legal entity with its own juridical status, management, and board of directors. The reasons for setting up a branch or subsidiary depend on the specific needs of the business, such as expanding coverage, administration, and distribution of goods and services to customers.

Comparative Table: Branch vs Subsidiary

Here is a table highlighting the differences between a branch and a subsidiary:

A branch is an extension of the parent company and does not have separate legal standing, while a subsidiary is a separate legal entity with its own identity. A branch conducts the same business as the parent company and uses its resources and systems, while a subsidiary may or may not carry out the same operations and can have its own resources, systems, and branding. The parent company has 100% ownership interest in a branch, whereas it has greater than 50% ownership interest in a subsidiary. Liabilities of a branch extend to the parent company, while those of a subsidiary are limited to the subsidiary itself.