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Subsidiary vs. Branch in France

Subsidiary vs. Branch in France

Updated on Sunday 13th November 2016

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Setting up a subsidiary or a branch in France is a great way for foreign companies to expand their activity. The most notable difference between the two forms of legal entities is their dependence (or lack thereof) upon the foreign parent-company.

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Branch

A foreign branch is an extension of the parent-company in another country. It has no independent legal personality and reports directly to the foreign company headquarters. Because this type of company it does not have separate identity, the laws and regulations that apply to the foreign company also apply to it.

One advantage for the branch deriving from its dependence upon the foreign parent-company is that the latter is financially responsible, if the branch encounters financial issues. The parent-company benefits from the rights acquired by the branch. However, the branch does bear responsibility for goods and has business initiative. It deals with its clients directly but it still acts on behalf of and in the best interest of the parent-company.

In order to set up a branch of a foreign company, the following documents must be submitted in French (translated by an authorised translator when necessary):

-    application for registering a branch;
-    copies of the Certificate of Incorporation;
-    Memorandum and Articles of Association of the parent-company.

The company must have a registered office in France and present a proof of possession for the premises in which it will operate. The branch must be registered with the Trade Registry. After its registration, the company must also be registered for VAT. The branch must have a person entitled to act on behalf of the company.

Subsidiary

Companies that want to establish a permanent entity in another country may prefer to set up a subsidiary: an autonomous company incorporated under French law and governed by it. Legally, 50% of a subsidiary’s capital is owned by the parent-company. The latter may still have a decisive influence in managing the subsidiary, due to the amount of share capital it possesses. The parent-company will not be liable for the debts of its subsidiary.

The subsidiary acts in its own name and only follows general goals from the parent-company. A subsidiary may have certain tax benefits and it will pay all applicable taxes.

The legal entities under which a subsidiary may be established are: SARL (limited liability company), EURL (single owner limited liability company), SA (public limited company), SAS (simplified joint stock company) or SNC (general partnership).

Although a branch have the advantage of conquering a larger geographical region and it is protected in many aspects by a powerful company, a subsidiary may find the advantage of certain benefits when acting as a locally incorporated company.

Find in the video below the main differences between French subsidiaries and branches:

If you need legal advice or assistance for opening a branch or a subsidiary in France, you may contact our French lawyers.
 

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