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Coddan CPM Ltd. – Company Registration Agent in the UK
Top Quality & Simple Company Formation Packages for British Professional Clients

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Disadvantages of Branch Office Registration or to Open an Establishment

Disadvantages of the UK branch office registration or to open an establishment

Register a Branch Office

Disadvantages of the UK branch office registration or to open an establishment: opening a UK branch office (an establishment) may be the perfect thing for your business, giving you a valuable foothold in the country and a place from which to interact with your client base. However, there are a few drawbacks to a branch office, particularly when compared to a full subsidiary company, that you may want to take into consideration before setting one up.

Liability: in the unwanted event that a UK branch office (an establishment) incurs liabilities or debts, whether from trading, purchases or payroll, then its legal status means that those liabilities transfer straight over to the parent company. This can be a problem if you are running an extensive international operation, as you will be left unable to isolate a financial problem in a UK branch if one occurs there.

Admin: though branch offices are only liable for corporation tax on sales made within the UK, and are not full separate companies in themselves, they have to undergo a similar level of accounting and reporting to full subsidiaries. They have to file returns for VAT employee payment and corporation tax. This means that you may not save a great deal financially or time-wise in opting for a branch over a subsidiary.

Decision making: any major decisions made by the branch office (an establishment), such as entering into new contracts that need to be signed in front of a notary, will need ratification by the board of the parent company to be legally sound. Relationships between the two will need to be close and involve frequent communication for the operation to be effective, meaning a fair bit of micromanagement may be required in certain cases.

Public image: despite the increasingly global nature of commerce, there are some consumers, businesses and banks that may tend to prefer doing business with a UK-based company. Reasons for this are diverse and varied: clients may be concerned over potential language barriers, they may perceive international companies as impersonal, or they may prioritise local shopping and trading in general.

These obstacles are not usually common, and can be overcome with careful marketing, but are nonetheless worth bearing in mind when constructing a business plan.