Company branch, branch, representative office - how are they different?
Terms such as representative office, company branch and subsidiary are often used interchangeably. Is it right? Not necessarily. Although it may seem that the differences between them are insignificant and, in fact, these words are synonyms, both the provisions of Polish legal acts and the jurisprudence show clear differences between them. What exactly are they based on? We answer in the article below.
Company branch - definition and features
A branch, like a representative office, is defined by the provisions of the Act of March 6, 2018 on the principles of participation of foreign entrepreneurs and other foreign persons in economic turnover on the territory of the Republic of Poland, specifically in art. 3 point 4:
Art. 3. The terms used in the Act have the following meanings: (...)
4) branch - a separate and organisationally independent part of economic activity, performed by the entrepreneur outside the entrepreneur's seat or the main place of business (...).
This provision is extended by Chapter 4 of the Act - Branches of Foreign Entrepreneurs, in particular Art. 14, which says that:
Art. 14. 1. For the purpose of conducting economic activity in the territory of the Republic of Poland, foreign entrepreneurs from the Member States may establish branches with their seat in the territory of the Republic of Poland.
2. Foreign entrepreneurs other than those referred to in sec. 1 may, for the exercise of economic activity on the territory of the Republic of Poland, on the basis of reciprocity, unless ratified international agreements provide otherwise, establish branches with headquarters in the territory of the Republic of Poland.
As you can see, a branch of an enterprise is a unit established by an entrepreneur in order to conduct business in another place - in the country (for example in another city) or abroad. A branch of an enterprise is created to expand production activities - it is primarily to start distributing goods or services performed by the enterprise elsewhere. Importantly, they must do exactly the same and operate in the same industry as the parent company.
Branches of the company in other countries are established in accordance with the rules contained in multilateral international agreements (i.e. concluded as part of cooperation between European Union countries or other organizations whose members are more than two countries) or bilateral agreements (usually concluded between EU and non-community countries bordering on them). Pursuant to Polish law, entrepreneurs setting up branches are obliged to enter them in the register of entrepreneurs - they can start their business only after receiving confirmation of the entry.
In addition, foreign entrepreneurs should fulfill several other obligations, indicated by the Act on the principles of participation of foreign entrepreneurs and other foreign persons in economic turnover on the territory of the Republic of Poland. It should:
provide the name, surname and address (in Poland) of the person who has been authorized to represent the foreign entrepreneur,
attach a specimen of such person's signature certified by a notary,
if it operates on the basis of the founding deed, contract or statute, submit their copies to the register files of the branch along with a certified translation into Polish,
if it has established more than one branch in Poland, the above-mentioned documents may be submitted in the files of one of the branches, however, in the registration files of other branches, the branch in which the indicated documents were submitted, along with the court in which the files are located, should be indicated , and the number of the branch in the register,
if it exists or performs business on the basis of an entry in the register - submit an excerpt from this register to the registration files of the branch along with a certified translation into Polish,
if he has established more than one branch in the territory of the Republic of Poland, these documents may be submitted in the files of one of the branches, however, copies of these documents should be submitted in the registration files of other branches and the branch in whose files the originals of these documents were submitted, along with the indication of the court in which the files are located and the number of the branch in the register.
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In addition, in the course of conducting business, he should:
to designate a branch, use the original name of the foreign entrepreneur along with the name of the entrepreneur's legal form translated into Polish and the words "branch in Poland" or "branch of the company in Poland",
keep separate accounting for the branch in Polish in accordance with Polish accounting regulations,
report to the minister competent in matters of economy all changes in the factual and legal status in terms of the circumstances referred to in Art. 91 paragraph. 1 point 2 (i.e. if the parent company has been liquidated or the entrepreneur has lost the right to operate) within 14 days from the date of their occurrence.
Branches of foreign enterprises are subject to special supervision by the minister responsible for economy - he may even issue an opinion on the liquidation of the branch. This occurs in the cases described in Art. 20 (1), which says that:
Art. 20. 1. The minister shall issue a decision prohibiting a foreign entrepreneur from pursuing economic activity within a branch, if:
1) the foreign entrepreneur is in flagrant breach of Polish law;
2) the liquidation of the foreign entrepreneur who established the branch has been opened, or the entrepreneur has lost the right to conduct business activity;
3) the activity of the foreign entrepreneur poses a threat to the security or defense of the state, the security of classified information classified as "confidential" or higher, or other overriding public interest;
4) the foreign entrepreneur was removed from the register indicated in the entry of the foreign entrepreneur's branch to the register of entrepreneurs.
In the case of issuing such a decision, the minister is obliged to notify the person representing the foreign entrepreneur about the obligation to initiate the liquidation proceedings of the branch within a specified period, not shorter than 30 days, and send copies of the relevant documents to the competent district court. The provisions of the Commercial Companies Code apply both in the case of liquidation carried out by the minister and voluntarily of a foreign entrepreneur.
Representation - definition and features
Representation has also been defined by the legislator in the Act on the principles of participation of foreign entrepreneurs and other foreign persons in economic turnover on the territory of the Republic of Poland and refers primarily to the offices of foreign entrepreneurs. According to the provisions of the act, the representative offices do not deal with production, but with advertising and promotion of the mother enterprise or the entire foreign country.
This does not mean, however, that Polish law places less requirements on entities wishing to establish a representative office in Poland. Pursuant to Art. 25, they should make an entry in the register of representative offices kept by the minister responsible for economy. The exceptions are branches of foreign banks or credit institutions.
The content of the application to be submitted is contained in Art. 26:
Art. 26. 1. The application referred to in Art. 25 sec. 1, is drawn up in Polish and includes:
1) name, seat and legal form of the foreign entrepreneur;
2) the subject of the main economic activity of the foreign entrepreneur;
3) name and surname of the person authorized in the representative office to represent the foreign entrepreneur;
4) the address of the seat of the representative office in the territory of the Republic of Poland.
2. The application must be accompanied by:
1) an official copy of the document confirming the registration of the foreign entrepreneur, on the basis of which the entrepreneur carries out economic activity;
2) an officially certified document specifying the address of the seat of the foreign entrepreneur, the rules of representing the foreign entrepreneur and an indication of the persons authorized to represent it, if the document referred to in point 1 does not contain the necessary information in this regard;
3) a document confirming the authorization of the person indicated in the application to represent the foreign entrepreneur in the representative office, containing the name and surname of the authorized person, their date of birth, names of their parents and the number of the identity document used by this person in the territory of the Republic of Poland, together with confirmation of acceptance of this authorization by an authorized person.
3. If the application contains formal defects, the minister calls on the applicant to supplement it within not less than 7 days from the date of delivery of the request. The set time limit for supplementing the application, upon a motivated request of the foreign entrepreneur submitted before the expiry of that time limit, may be extended. If the formal deficiencies are not remedied within the prescribed period, the application is not examined (...).
The aforementioned documents and attachments should be presented in Polish, after being affixed with an apostille, i.e. a certificate that the translation was made by a sworn translator.
Importantly, formal deficiencies are not always the reason for refusing an entry in the register. The minister may also refuse to make an entry when the establishment of an establishment would threaten the security or defense of the state or the security of classified information classified as "confidential" or higher, or other important public interest, or when the activities of the representative office would exceed advertising or promotional activities.
Running a representative office imposes certain obligations on the entrepreneur. It should:
to designate a representative office, use the original name of the foreign entrepreneur together with the legal form of the entrepreneur translated into Polish and the words "representative office in Poland",
keep separate accounting in Polish for the representative office in accordance with Polish regulations regulating this issue,
report to the minister competent for economy any changes in the factual and legal status of the data that he was obliged to include in the application, on the commencement and completion of the liquidation of the foreign entrepreneur, and on the loss of the foreign entrepreneur's right to conduct business activity or dispose of his property, within 14 days from the date of these events.
As in the case of a branch, the minister competent for economy may issue a decision to liquidate a representative office. This happens when:
its activity grossly violates Polish law or the facility has not notified the changes mentioned in the above paragraph in point 3,
the liquidation of the foreign entrepreneur has started or he has lost the right to conduct business activity,
the activity of a foreign entrepreneur poses a threat to the security or defense of the state, the security of classified information classified as "confidential" or higher, or to any other important public interest.
The minister should notify the person representing the foreign entrepreneur about the issuance of such a decision within 30 days, and the copies of the documents should be sent to the competent district court. The provisions of the Commercial Companies Code apply to the liquidation of representative offices, except for banks and credit institutions.
Branch - definition and features
Affiliate is the most general term when it comes to representing business entities. Moreover, it is not included and defined by any legal acts, but it is customary to define such a subsidiary and connected by statute and organization with the parent enterprise, but having its own structure and carrying out specific activities. Although it is difficult to conclude from this definition what exactly a branch does, this concept can be found in both domestic and foreign jurisprudence. An example is the judgment of the European Court of Justice on the registration of company branches in a European Union Member State:
It is contrary to Art. 52 and 58 of the EC Treaty, such an action of a Member State which consists in refusing to register a branch of a company established in accordance with the regulations of another Member State and having its registered seat in that state, even if it does not carry out any activity there, if the purpose of the branch is to enable the company to operate in the country where the branch is to be established, and in which it does not meet the conditions required to establish the company, which in that country are more restrictive with regard to the minimum share capital requirement.
This concept also appears in Polish jurisprudence, for example in the judgment of the Supreme Administrative Court of April 8, 2014, file ref. I OSK 210/14. This means that a branch is used as an alternative term for a branch - in the jurisprudence it is used in relation to establishments operating actively and carrying out some economic activity, not only advertising or promotion.
Therefore, as it follows from the above considerations, the branch of the enterprise and the representative office do not mean the same - the first type of establishment deals with economic (production) activity and sometimes distribution, while the second term applies strictly to entities dealing with advertising and promotion of not only enterprises, but also entire entities. countries. A branch, on the other hand, is a customary and somewhat less precise definition of a branch.