Branching Out: Choosing the right UK business structure

When an overseas entity is making the exciting decision to expand your business into the UK, one of the first decisions you will need to make is whether to establish a UK branch or incorporate a UK subsidiary company.

Both structures will enable your company to trade from the UK, however there are some distinct differences to consider for regulations, compliance, and strategic business planning. There are also tax consequences, but this will not be the subject of this article and we would always suggest seeking tax advice before choosing a path forward.

Legal Requirements for a Subsidiary

A UK subsidiary is a UK registered company (often incorporated as a private limited company), and governed by the Companies Act 2006. UK subsidiaries benefit from separate legal personality from their parent company. This means the subsidiary is liable for their own debts and liabilities and can own property and assets. They also have their own corporate governance structure, their own board who are responsible for the management of the subsidiary and who are subject to director’s duties, pursuant to the Companies Act 2006.

Subsidiaries must adhere to the provisions in the Companies Act and other laws and regulations of the applicable jurisdiction of the UK. For example, any company names must be compliant with the Companies Act and Business Names Act and each subsidiary will have to keep their own statutory registers. The subsidiary is required to file annual accounts and a confirmation statement with Companies House and the accounts must comply with UK accounting standards. The incorporation process is the same as any other private company in the UK. Form IN01 is submitted to Companies House along with the subsidiary’s articles of association.

Legal Requirements for a Branch

A UK branch is very much like it sounds. It operates as a branch or extension of an overseas company and is not a separate legal entity. It operates directly under the parent company’s legal and financial framework and does not have its own board of directors or officers. The overseas company’s board has the ultimate responsibility.   There is a requirement to nominate a permanent representative, who is authorised to represent the company in respect of the UK establishment and state that representative’s authority. There are no qualifications that must be met in respect of the permanent representative.

An overseas company is required to register a branch where it has a physical presence in the UK, such as an office or a warehouse, such registration with Companies House to take place within one month of opening.

The registration involves submitting Form OS IN01, a certified copy of the parent company’s constitutional documents, and details of the parent company’s directors and the individuals responsible for the branch in the UK.

While the branch does not have to maintain its own statutory records, it must submit annual accounts of the parent company to Companies House, within certain timeframes. These accounts should be in English and in a format that complies with UK requirements. If a company is not required to produce accounts in its home country, then it would have to produce accounts for the purpose of filing them at Companies House.  This is something which needs to be considered should you decide to set up a branch. Companies House should also be updated with any changes to officers or constitution of the overseas company.

Conclusion

The choices between setting up a subsidiary or a branch hinge on factors like legal liability, management structure, tax considerations and annual costs. A subsidiary offers limited liability protection and greater operational independence, while a branch can be easier structure wise and might offer greater flexibility and less annual costs.

If you require any advice on establishing a presence in the UK, please contact us to speak to a member of our Corporate Governance Team.