Branch Entity or Subsidiary

Branch Entity:

A branch is where a new location, division, department, or office is set up, still under the original company’s name and is still part of that legal entity.  It is a part of a company that is organized so as to conduct business on behalf of a company, as opposed to carrying on business that is merely ancillary or incidental to the company’s business as a whole.

Subsidiary Company:

Is where a company sets up a new company and registers the legal entity with the local authority as a stand-alone company. A subsidiary is a separate legal entity from the parent, although owned by the parent corporation. A company may form a subsidiary either by purchasing a controlling interest in an existing company or creating the company itself.

At a glance:

The steps you are legally required to follow are outlined in this section including:
STEP ONE

Register with the Registrar for Foreign Companies

STEP TWO

How to Obtain Entry Permit(s)

STEP THREE

How to register for Tax with the Kenya Revenue Authority (KRA)

STEP FOUR

How to apply for a Business Permit

STEP FIVE

How to register your Company with the Registrar of Companies

STEP SIX

How to register with the National Hospital Insurance Fund (NHIF)

STEP SEVEN

Additional Information (New Companies Act for Foreign Companies in Kenya)

Additional Information

For more information on opening a Branch/Subsidiary in Kenya visit our Learning Centre.

PROS

Advantages of Opening a Branch/Subsidiary in Kenya

OPENING A BRANCH
  • The concept of “branches” is a simple registration system that removes the need for overseas companies to face complex procedure of incorporation.
  • The charges for starting up a branch are less than for incorporating a subsidiary.
  • The branch maybe exempted from filing the returns at the branch office location.
OPENING A SUBSIDIARY
  • As long as the parent company holds its subsidiary accountable for the expectations of its board of directors there is little risk for the parent to be found liable for the wrong doings of the subsidiary.
  • Considerable tax advantages and legal protections.
  • Taxation of the subsidiary is on the subsidiary’s income alone and when properly structured and operated, the liabilities of the subsidiary are not attributable to the parent corporation.
  • Ability to offset profits and losses of one part of a business with another.
  • The subsidiary can file tax returns on the profits obtained.
  • Liabilities and credit claims cannot be passed on to the parent company.
  • Allows for joint ventures with other companies with each owning a portion of the new business operation.

CONS

Risks of Opening a Branch/Subsidiary in Kenya

OPENING A BRANCH
  • Subjects the parent corporation to taxation on its entire corporate income (rather than just the branch’s income).
  • Does not shield the parent corporation from liability incurred at the branch level.
  • Losses are included in the parent company’s income statement.
OPENING A SUBSIDIARY
  • If the parent company exercises excessive control i.e. has the same board of directors, use of common letterhead.
  • In such cases the parent company and the subsidiary are treated as one and the parent company is responsible for the subsidiary’s
  • The legal procedure involved in creating a subsidiary can be lengthy and expensive; the process of incorporation is quite technical.
  • Control also becomes an issue when a subsidiary is partially owned by another outside organization.

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