Meaning
Statutory provisions in the national corporate code define the distinct legal identities and liability structures of branch offices and subsidiaries. Under article 14 prc company law, a company may establish branches which do not possess the status of a legal person. The parent company assumes the civil liability for these branches.
A company may also establish subsidiaries which do possess the status of a legal person and bear independent civil liability.
Legal Liability
Obligations incurred by a branch remain the responsibility of the head office. While article 14 prc company law permits a branch to sign contracts, the assets of the parent company are ultimately reachable by creditors. This arrangement simplifies local operations while centralizing the financial risk.
Branch Capacity
Operational activities are restricted to the business scope approved for the parent entity. Even though article 14 prc company law treats a branch as an extension of the parent, it must still obtain its own business license from the local administration for market regulation. This license allows the branch to open bank accounts and hire employees in that specific city.
Regulatory Limit
Foreign invested enterprises must consider how these structures impact their tax and compliance standing. Because article 14 prc company law separates the legal personality of a subsidiary, that entity must maintain its own capital and books. Tax authorities require separate filings for subsidiaries, whereas branches often consolidate their income tax with the head office.
This choice affects the ability to repatriate profits and the complexity of annual audits. Legal disputes involving a branch typically name the parent company as a co-defendant to ensure the availability of funds for potential settlements.
