A company expands its business by opening up its branch offices in different parts of the domestic country as well as in other countries. A branch office refers to an establishment that carries on substantially the same business and activity as is carried out by its Head Office. Such offices assist the company in:-
- Spreading its business to diverse locations and thus increasing the client base.
- Bringing its product closer to the clients by increasing their accessibility to it.
- Making the distribution and marketing of its services and goods easier and more effective.
Procedure for opening branch offices by a domestic company
It is provided under the New Companies Act, 2013, according to which:-
In order to open new branch offices in India, a domestic company must pass a resolution in its Board meeting specifying:
- The business to be carried out at that particular branch office.
- The appointment of somebody to look after the everyday business of the branch and operate the bank account of that branch.
- The provision for authorizing somebody to make arrangement for establishment, accommodation, and other requirements which are essential to run that branch office.
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Procedure for opening branch offices by a foreign company
The opening up of branch offices is one of the options by which a foreign company can set up its business operations in India. It requires to obtain a prior permission from Reserve Bank of India (RBI) for setting up such offices in India. As per the guidelines issued by RBI, these branch offices are subjected to the following conditions:
- The branch office cannot expand its activities or undertake any new trading, commercial or industrial activity other than those which are expressly approved by the RBI.
- The entire expense of the branch office in India will be met either out of the funds received by it from abroad through income generated by it in India.
- The branch office cannot recognize any deposits in India.
- The commission earned by the branch office from parties abroad for any agency business will be repatriated to India through normal banking channels.