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Q.3 What is the main difference between a #branch office and a #subsidiary?

The primary difference is that a branch office is an extension of the parent company, whilst the subsidiary company, a #Kabushiki-Kaisha (KK) or a #Godo-Kaisha (GK), is a separate legal entity. 

Since the branch office is merely an extension of the parent, it has no shareholders, and the parent company retains complete legal responsibility for the actions of the branch office. 

If a branch office in Japan is involved in a lawsuit due to its activities, the parent company (head office) automatically becomes a party to the lawsuit.

In contrast, if a subsidiary is established, the subsidiary has a juridical personality separate from that of the parent company. Therefore, even if the subsidiary is involved in a lawsuit, the parent company is not a party to the lawsuit.

However, in terms of advantages, it is much faster and less expensive to register a branch office than it is a KK or a GK.  Furthermore, a branch office has many of the capabilities that a subsidiary has: namely, renting an office, leasing property in its name, entering business and legal contracts, hiring employees, and sending profits back to the parent company.

Although there are advantages of establishing a branch office rather than a subsidiary, it is also important to mention the disadvantages.  Therefore, a branch office cannot raise any future capital through public stock offerings nor can it protect the parent company from any liability that is generated by the branch in Japan.

In terms of corporate taxes, the profits and losses of a branch office are taxed at the Japanese corporate tax rate.  This also applies for subsidiaries, therefore in this regard there are no differences.

Lastly, please note that it is not possible for a branch office to be re-organized into a subsidiary.  However, the foreign corporation may set up a subsidiary and then transfer the branch’s assets to the subsidiary.  Therefore, business contracts between a branch and its clients can be transferred by renewing the contracts to the new subsidiary. 

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