Branch vs. Subsidiary: What's the Difference?
Edited by Aimie Carlson || By Harlon Moss || Updated on October 21, 2023
A branch is an extension or division of a company in a particular location, while a subsidiary is a separate legal entity controlled by a parent company.
Key Differences
A branch, in the corporate sense, refers to a division or extension of the main company. It operates under the same legal entity as the main company and doesn't have a separate legal standing. The subsidiary, on the other hand, is a distinct legal entity, albeit one that's controlled by a parent company.
When businesses expand, they often set up branches in new locations. These branches operate under the same name and business ethos as the main company. Subsidiaries, conversely, might function under a different name, and while they align with the parent company's ethos, they can also have their unique characteristics.
Liabilities and responsibilities differ between branches and subsidiaries. Since a branch isn't a separate legal entity, its liabilities are directly the liabilities of the parent company. A subsidiary, being its separate entity, typically bears its liabilities unless explicitly guaranteed by the parent company.
From a taxation perspective, branches and subsidiaries might be treated differently. A branch's income is usually taxed in conjunction with the parent company. Subsidiaries are taxed separately, based on the jurisdiction they operate in and their income.
Management structures can also differ. Branches are generally overseen by managers appointed by the parent company and follow the policies set by the main office. Subsidiaries have their management teams, and while they're accountable to the parent company, they might have a degree of autonomy in decision-making.
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Comparison Chart
Legal Entity
Not a separate legal entity; part of the main company
A distinct legal entity controlled by a parent company
Liabilities
Liabilities are those of the parent company
Has its own liabilities unless guaranteed by parent company
Name
Usually operates under the parent company's name
Can operate under a different name
Management
Directly overseen by the parent company's appointed managers
Can have its management, with some autonomy
Taxation
Income typically taxed with the parent company's income
Taxed separately based on its jurisdiction and income
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Branch and Subsidiary Definitions
Branch
A division of a company operating in a specific location.
The tech company has a branch in Silicon Valley.
Subsidiary
A company controlled by another, called the parent company.
TechCorp's latest acquisition became its most profitable subsidiary.
Branch
An outpost of the central business.
The fast-food chain set up a branch in the mall.
Subsidiary
A separate legal entity from the parent company.
The subsidiary operates under its laws and regulations.
Branch
An extension of a main company.
The bank opened a new branch downtown.
Subsidiary
Can function under a different name than its parent.
Though owned by MegaCorp, the subsidiary kept its original branding.
Branch
Part of the same legal entity as the parent company.
The branch's assets are considered assets of the main company.
Subsidiary
Offers some degree of operational autonomy.
The subsidiary introduced policies tailored to its regional market.
Branch
Operates under the parent company's governance.
The branch follows guidelines set by the headquarters.
Subsidiary
A company where the majority stake is owned by another.
The media giant holds an 80% stake in the subsidiary.
Branch
A secondary woody stem or limb growing from the trunk or main stem of a tree or shrub or from another secondary limb.
Subsidiary
Serving to assist or supplement; auxiliary.
Branch
A lateral division or subdivision of certain other plant parts, such as a root or flower cluster.
Subsidiary
Secondary in importance; subordinate.
FAQs
What's the primary difference between a branch and subsidiary?
A branch is an extension of a company, while a subsidiary is a separate legal entity controlled by a parent company.
Who bears the liabilities for a branch?
The parent company directly bears the liabilities of its branches.
Can a subsidiary operate under a different name?
Yes, a subsidiary can have a different name than its parent company.
Can a subsidiary have its management team?
Yes, subsidiaries often have their management teams, though they report to the parent company.
Is a branch taxed separately?
Generally, a branch's income is taxed in conjunction with the parent company.
Can a branch become a subsidiary?
Yes, companies can restructure, converting branches into separate legal entities or subsidiaries.
Can a company have both branches and subsidiaries?
Yes, many companies have a combination of branches and subsidiaries.
Are there specific tax benefits to having a subsidiary?
Tax benefits depend on jurisdictions. In some cases, subsidiaries can offer tax advantages based on their location.
Why might a company choose a branch over a subsidiary?
Branches can be easier to set up and manage directly under the parent company's oversight.
Who makes decisions for a branch?
Decisions for a branch are typically made by managers appointed by and reporting to the parent company.
How is a subsidiary formed?
A subsidiary can be formed through acquisition or by setting up a new company.
Can a subsidiary be located in a different country?
Yes, many subsidiaries are established in different countries for various strategic reasons.
How is the profit of a branch used?
The profits of a branch are typically funneled back to the parent company.
How are subsidiaries and branches reflected in financial statements?
Branches are integrated into the parent company's statements, while subsidiaries might be consolidated, depending on ownership percentage.
Can a subsidiary be larger than its parent company?
While uncommon, it's possible for a subsidiary to grow and become larger than its parent company.
Can a subsidiary own another subsidiary?
Yes, it's possible for a subsidiary to have its own subsidiaries.
How is the performance of a branch measured?
Branch performance is usually evaluated based on its contributions to the parent company's goals and profitability.
Does a branch have autonomy in operations?
Branches typically follow the guidelines and policies set by the parent company.
What's the advantage of having a subsidiary over a branch?
Subsidiaries can offer legal and financial insulation, protecting the parent company from some liabilities.
Are the employees of a branch and subsidiary considered the same?
Branch employees are directly the parent company's employees, while subsidiary employees work for the subsidiary.
About Author
Written by
Harlon MossHarlon is a seasoned quality moderator and accomplished content writer for Difference Wiki. An alumnus of the prestigious University of California, he earned his degree in Computer Science. Leveraging his academic background, Harlon brings a meticulous and informed perspective to his work, ensuring content accuracy and excellence.
Edited by
Aimie CarlsonAimie Carlson, holding a master's degree in English literature, is a fervent English language enthusiast. She lends her writing talents to Difference Wiki, a prominent website that specializes in comparisons, offering readers insightful analyses that both captivate and inform.
