Companies pursue their commercial activities in a commercial establishment, this being understood to be a place (shop, warehouse) open to the public and intended for carrying out said activities. A company may be the owner of one or various establishments with the objective of performing the same or various different commercial activities, and each one of them may be found in the same locality or in different geographical areas.

In those cases wherein a company pursues its activities via two or more establishments, one of them is considered to be a main establishment and the others are considered to be secondary establishments or branches.

In accordance with what is set forth in the Commercial Registry Regulation (hereinafter, “CRR”), branches are secondary establishments which lack legal personality, but are bestowed with permanent representation and a certain managerial autonomy, through which the activities of the parent company are totally or partially carried out (article 295 of the CRR in relation to article 87.3.1. and 307 of the CRR). Therefore, it may be concluded that the branch is subject to the legal personality of the company to which it belongs and, thus, the responsibility is assumed without limitation by this company. The scope of its activities is limited to the corporate purpose of the principal company abroad.

The opening of a branch complies with the wish of the company to expand its business activity geographically, whether on a national or international level, in order to attract new clients. Opening a branch in Spain may be an  interesting option for many companies incorporated in an EU country in order to expand their activity in this country. For that purpose, it is necessary for the branch to have a permanent representation in Spain, along the lines of designating one or various persons entrusted with representing the company on Spanish territory. The obligatory nature of providing the branch with said representation justifies the necessity to register the opening and closing thereof at the Commercial Registry (article 22 of the Commercial Registry Code and article 296.2 of the CRR).

With regard to the permanent representation of the branch, the persons who will hold the post of permanent representatives should not be confused with those persons who hold the condition of members of the management body of the parent company, although such persons may coincide, it is not necessary for the valid establishment of the permanent representation.

A branch must not be mistaken with:

  • Premises and accessory installations: these are places wherein preparatory activities or activities which are complementary to the main activity of the company are carried out, such as warehouses where merchandise is kept and conserved, before it is transferred to establishments open to the public, or the offices where accounting is materially kept (in these cases a branch does not exist because the business activity is not in itself carried out before third parties and, therefore, there are no permanent representatives).
  • Subsidiary: whereas a branch is a secondary establishment of a company, a subsidiary is an autonomous legal entity with its own legal personality (that of a company) dedicated to the same or a different activity, and which holds the totality or at least the majority of the shares or membership interests into which the share capital of the subsidiary is divided.
  • Representative office: this is a fixed place for business, established by a non-resident company in Spain, with the purpose of carrying out preparatory, advertising, promotional, supply of information, scientific investigation or similar activities, without carrying out the principal economic activity of the non-resident entity.

Unlike a subsidiary, a branch, as a secondary establishment without legal personality, does not require any contribution (share capital) for its opening, although the parent company is free to make such contributions to the branch. Furthermore, given the lack of legal personality, the branch may not be the object of rights and obligations, so that any debts incurred are essentially assumed by the parent company.

The opening of a branch or a representative office, or the incorporation of a subsidiary, depends on financial, legal, tax and organisational matters; on occasions said options are combined, so that many companies, as well as having various branches, also have one or various subsidiaries dedicated to the same or a different activity.

Our team at Vilá Abogados has extensive experience in the opening and handling of branches and representative offices, as well as in the incorporation of subsidiaries, and therefore offers comprehensive legal advice in this field.

 

 

Albert Zúñiga Carulla

Vilá Abogados

 

For more information, please contact:

va@vila.es

 

26th May 2023