Branch Companies is an increasingly common feature of modern business. Although they have been around for a long time, their role and function in the modern global business have increased dramatically in recent years. Branch Companies allows companies to diversify their internal functions by providing them with another business department. They are generally established as part of a group of companies operating as a syndicate. A company’s Board of Directors will generally select a Net Branch Company (NBTC), which is obliged under the Net Branches law to carry out the business activities of all branches of the parent company.
Net branches are subject to the same taxes as the parent company and can enjoy all the tax benefits that apply to the parent company. They are also subjected to taxation at the local rate, rather than the statutory corporate rate. The only difference between the parent company and its subsidiary is the legal status. Branch Companies enjoys all the rights and privileges which they would enjoy if they operated singly. Branch Companies operates legally and is subjected to all the laws that apply to corporations. Therefore, they cannot engage in any conduct which would constitute a breach of the law.
There are two main types of Net branches – sole proprietorships and special regimes. Both involve separate legal and accounting procedures, but there are differences in the way in which they are reported to the tax office. Both are required to provide annual accounts to the Board of Directors, to keep accurate records of the expenses incurred during the year, and to report on the success or failure of the year’s performance to the Board. Similarly, both branches are obliged to submit audited accounts to the Board in order to be declared fit and proper to operate as a branch.
A sole proprietor is generally viewed as having control and possession of the business, whilst a special regime allows a person to act as the legal person and to control and manage the business. For most businesses, the ultimate decision maker is usually a single individual, such as a sole proprietor or a director. In a special regime, there may be multiple officers at different locations who control the business and its affairs. All of these people are legally responsible for the running of the business and reports are submitted to the Board of Directors at the Board’s request.
A major advantage of the branch company system over the other corporate structures is that it protects the interests of the parent entities. Under the system set out by the Australian Tax Office, all non-disclosure agreements signed by a parent entity must be recorded. These agreements typically restrict the right of the parent to sell shares to its affiliates and restrict their ability to enter into any dealings with customers of their affiliates. These agreements may also restrict the ability of affiliates to enter into any agreements with suppliers of the parent company’s products or services. By providing a legal entity for the operation of business operations, a branch company frees the parent entities from many of the potential restrictions which may affect their capacity to operate their business.
Although branches are usually set up to carry out the day-to-day management functions of a company, they can also act as legal corporations. This means that, depending on the legislation in the respective country, a branch can be established as a separate legal entity from its parent Company. The courts in Bermuda recognize a number of parent company options, including limited liability partnerships (LLPs), corporation, limited liability partnership (LLP), and corporations. A branch can be set up as an LLC in Bermuda, for example, and will have the same type of protection under the law as an LLC would. Similarly, a corporation can be set up in Bermuda, and although it cannot have the protection afforded to an LLC, it still has the advantages of limited liability and taxation treatment.