23/10/2017

Branch Offices

In contrast to a subsidiary, a branch office is – in legal and administrative terms – part of the head office company and not a separate legal entity in its own right. The branch office carries out similar business activities to the head office company. In this context, the head office company is liable for the assets of the branch and all of its assets. In Germany, there are two kinds of branch offices which primarily differ due to the degree of independence from the head office company.

Dependent Branch Office

A dependent branch office (unselbständige Zweigniederlassung) is a subordinate department of the head office company and does not have any autonomy from it. It is not able to independently participate in the general business transactions of the head office. Invoices have to be made out in the name of the head office company. An individual company name cannot be used. Accordingly, the dependent branch establishment does not have to be entered in the commercial register. It is only necessary for the business activity that is being practiced to be notified at the responsible trade office (Gewerbe-/Ordnungsamt).

Other Forms

Offices that purely serve to observe the market and pave the way for initial customer contacts are often described as "representative offices." However, this is a term which does not exist in German commercial law. A representative office must usually be registered as a branch office in Germany.

Once an office is used by a foreign company for commercial activities (thus forming part of the foreign company organization), it generally must be registered at least as a dependent branch office in Germany. This is typically the case if the foreign company has a permanent representative who conducts the commercial activities of the company in a sustained manner and, in doing so, is subject to its instruction.

An office managed by a self-employed third party (e.g. a commercial agent authorized by the company)
may be considered a case where no independent business activity is conducted on behalf of the foreign company. Where this is the case, registration of the foreign company with the local trade office is generally not required. Decisive here is the actual level of independence of the agent and their freedom to act without instruction from the company.

Autonomous Branch Office

Foreign (commercial) companies can set up an autonomous branch office (selbständige Zweigniederlassung) in Germany if they are entered in a foreign commercial register (or a comparable directory).

The autonomous branch office is dependent upon the head office company at the internal level but engages in business activities independently. The relationships with the customers are generally subject to German law. However, the foreign head office company is liable for the business transactions concluded by the branch.

At the organizational level, autonomous branch offices are to a certain extent independent from the parent company and usually have the following attributes:

  Management with the freedom to act according to their own judgment (i.e. with full power of attorney and power to contract)
  Own capital resources and bank account
  Separate accounting
   

The branch office must be entered in the commercial register (Handelsregister) and provide notification of any business activity it is practicing at the responsible trade office (Gewerbe-/Ordnungsamt). The branch office can use its own name affix but the company name of the head office must also appear including its legal designation (for example: XY Ltd., branch office, Berlin).

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