Hamilton Pratt

Branch/Subsidiary Franchising in the UK

There are, of course, substantial legal differences between setting up a branch office and setting up a subsidiary in a foreign country. The tax implications of a branch will have to be considered carefully because a franchisor which sets up a branch operation in some jurisdictions may be liable to tax in the target country on part of its worldwide taxable profits. Perhaps more importantly, if the expansion in the target country is unsuccessful the franchisor’s financial position in his home country could thereby be affected. A subsidiary, being an independent legal entity could, should and need arise, be liquidated. A further disadvantage of establishing a branch office is that the filing requirements of the target country may require full details of the franchisor to be disclosed to the authorities. If a subsidiary is set up, only information about the subsidiary is usually required to be disclosed.

A foreign franchisor will tend to set up a branch or subsidiary in broadly the same situations as direct franchising – where the risks are small.

The advantage of a branch or subsidiary operation is that the franchisor remains in control of the franchise operations and does not have to share any of the revenue with a third party. The franchisor can also introduce local knowledge by employing individuals with this knowledge in the branch or subsidiary.