Setting up a dependent or independent branch

1. Types of business activity

In order to expand many businesses establish a new location. This raises the question of how the new business establishment can be organised by law within the overall structure of the business. There are three possibilities available:

Founding a subsidiary (Tochterunternehmen)
Setting up an independent branch office (unabhängige Zweigniederlassung)
Setting up a dependent branch office (abhängige Zwiegniederlassung/Betriebsstätte)

a) Subsidiary
When a subsidiary is founded a business that is legally independent of the parent company is created. As with the founding of any business, the legal provisions that apply to a particular type of business organisation are binding. Even in the case of a foreign national who is founding a business, it is solely German regulations that apply to the founding of the company, registering it as a business and entering it into the commercial register.

b) Independent Branch Office
A branch office is not a juristic person who is separate from the headquarters of the company. It is legally, and in terms of how it is organized, part of that company. It is thus subject to the laws that apply to the headquarters of the company. If the branch office is set up by foreign company, it is subject to the foreign laws that apply to the headquarters of that company.
According to the commercial code (HGB) a branch office is physically and structurally separate from a company’s main place of business. It is created as an additional focus of the company and intended to exist in the long-term. The typical features of a branch office are:

It must be organised in such a way that it is able to engage in business activity independently. Meaning that its continued existence must be possible should the headquarters cease to exist.
It conducts business that is typical of the whole company.
It must demonstrate certain independence by having its own management with its own authority, separate accounting systems, its own balance sheet and its own working capital allocated by the headquarters.

Since the branch office is not an independent company but a constituent part of an overall company, the name of the branch office is usually the same as that of the company headquarters. Additions, e.g. Branch Office Germany or Bonn, are possible.

The manager of the branch office represents it independently to the outside world. The debtor of liabilities is however always the natural or juristic person that is the company headquarters.

c) Dependent Branch Office
A company can have several branches. Such a branch is dependent on the company headquarters in every respect. Invoices are also issued in the name of the headquarters. Since this is a single business operation which is simply carried out at various physically separate points, such branches may not conduct business of their own which differs from that of the headquarters. All dependent branches must be registered with the office for the registration and supervision of trades.

The term “representative” office, which is often used in this context, does not exist in German commercial law. Very often “representative offices” serve merely to observe the market and pave the way for initial customer contacts. This kind of business activity needs to be registered.

Only if an office, which is managed by a self-employed external business person (e.g. a commercial agent) who has been authorised by the company, is opened, can it be said that there is no independent business activity on the part of the foreign company. In this case registration with the appropriate office for the registration and supervision of trades is not required.

2. Formalities

a) Registration of a trade/business
All business activities of a subsidiary, an independent branch or a dependent branch must, in accordance with the commercial and industrial code, be registered with the office for the registration and supervision of trades.

b) Entry into the commercial register

aa) Subsidiaries
Independent subsidiaries must be registered with the commercial register at the relevant local magistrates’ court. The registration must be certified by a notary.

bb) Independent branch
For independent branches, registration with the office for the registration and supervision of trades and entry into the commercial register is required. Thereby each branch acquires its own registered location, its own company registration number and its own place of jurisdiction. Registration with the commercial register must be certified by a notary.

Whether the independent branch of a foreign company is entered into the commercial register A or B depends on the type of German business organisation to which the foreign company is most similar.

cc) Dependent branches
Dependent branches are not entered into the commercial register. Registration with the office for the registration and supervision of trades is sufficient.

dd) Required authorisation
It is necessary for various trades/businesses to acquire authorisation from the appropriate authority before they begin trading.

The establishment of any business relating to a skilled trade requires authorisation. The business must be entered into the handicrafts roll of the Chamber of Handicrafts that is responsible for that particular region. Normally it is required that the business is run by someone with a qualification as a master craftsman. Only in some cases are exceptions to this requirement permitted.

Apart from this there is freedom of trade. For example, most commercial enterprises (wholesale and retail) are not regulated. The running of a business is however subject to a range of special rules and regulations.

c) Required information and documentation

aa) Registration with the office for the registration and supervision of trades
When registering a trade/business with the office for the registration and supervision of trades the following documents must be provided:

Identification documents for the person filing the application

A valid ID card/passport
a valid residence permit which permits the holder to engage in self-employed work
If necessary written evidence of being authorised to act for a third party (natural or juristic persons). In the case of a managing director, a board member or an authorised signatory of a company: an excerpt from the commercial register giving proof of that company being registered.
If necessary: permits (for example, skilled craftsman’s card, broker’s permit etc.)

Proof of the identity of the company

A company that is entered into the commercial register must demonstrate the existence of this entry with an excerpt from the commercial register.
A company that is entered into a foreign commercial register must likewise produce the relevant documents that provide proof of this entry. Furthermore, a translation into German must be produced. Normally authentication of this translation is not required.
In the case of a foreign company there must be someone in Germany authorised to act for the company. This person must provide relevant evidence of his authorisation (see above). A German address is also required
If the address of the person making the registration is not the same as that of the company, the existence of these business premises must be proved by a rental agreement or confirmation of such by a landlord.
If there is good reason, a police clearance certificate or information from the central trade register can be demanded.

bb) Entry into the commercial register

Registering an independent branch of a German sole proprietorship or partnership

Registration is made at the court responsible for the headquarters or the principal location of the company. The required signatures must be supplied to the court of registration responsible for the branch. The same information which was necessary for registering the headquarters of the company should be provided for the branch.

Registering an independent branch of a German joint-stock company

The branch of a joint-stock company is registered at the court responsible for the headquarters so that entry into the commercial register can be made by the directors/the board. The same information which was necessary for registering the headquarters of the company should be provided for the branch. The required signatures must be supplied to the court responsible for the branch. In addition, the following documents must be attached:

the memorandum and articles of association
in case of a limited company, a list of the members

In order to register an independent branch of a company whose principal seat is abroad in Germany, registration is carried out by the branch manager at the court in whose area of jurisdiction the branch is to be established. The following information is required for the:

Company headquarters:

the register in which the company is listed insofar as such an entry is required by the law of the country to which the company is subject to.
the type of business organisation of the company e.g. GmbH
If the company is not subject to the law of a member state of the European Union (EU) or of a state which is signatory to the agreement concerning the European Economic Area (EEA), the law of the country to which the company is subject.
the name of the company and its location
the objects of the company
the day on which the memorandum and articles of association were signed
the names of the directors or the board members as well as the scope of their authority
the amount of original share capital
whether the life of the company is limited in time or not

Branch:

the address and objects of the branch
the amount of working capital
the day on which the decision was made to establish the branch
The names of the directors or the board members who are allowed to represent the company in the branch both in court and out of court as well as the extent of their representative authority.
whether the life of the branch is limited in time

Attached documents

Where necessary, proof of being authorised to act for a third party (natural or juristic persons). In the case of a managing director, a board member or an authorised signatory of a company: an excerpt from the commercial register giving proof that the company is registered.
proof of existence of the company headquarters
Insofar as German law requires authorisation for the company or for its objects, proof that this authorisation has been given.
a certified copy of the memorandum and articles of association and, where the original articles were not written in German, a certified translation
the certified signatures of the directors or board members

Additional requirements for non-EU citizens or companies from third countries:

- a (temporary) residence permit or
- a (permanent) settlement permit

A residence permit can be granted for business start-ups in accordance with Section 21 of the Residence Act (Aufenthaltsgesetz) if, among other things

- there is an overriding economic interest or a special regional need
- the activity is expected to have a positive impact on the economy and
- the financing of the realisation is secured by equity capital or a loan commitment.

For further information please contact us.