Both the branch and the subsidiary are two means of doing business that can be used to open the activities of a foreign company in Romania. However, these two business forms are fundamentally different in term of the parent company’s liability and this feature can greatly influence an investor’s choices. The branch is suited for several types of business activities and is often used by banks that expand their business activities in Romania.
In this article, our Romanian lawyers highlight the main characteristics of the branch, the degree of liability for the parent company as well as list the steps for those who are interested in how to set up a company branch in Romania in 2022.
Opening branches in a different country can be a sound expansion strategy and Romania is one of the locations where foreign companies can base their Eastern European branch.
We begin by answering some common questions about this business form. Investors who wish to know more or those who are interested in the specific regulations that may apply in a business field for their branch can reach out to our experts in company formation in Romania. They can also help you open a micro company in Romania.
Table of Contents
Question: What is the legal status of a branch set up in Romania?
Answer: The branch functions as a division of a parent company and, according to Law no. 105/1992 on the Regulation of the Private International Law Relationship, it is governed by the national law in the country of origin.
Some of the characteristics of the branch are the following:
- No legal personality: it has no independence, no individual prerogatives; it is merely a secondary office
- No individual activities: it performs a set of actions as dictated by the mother company.
- Parent company liability: the main company is always responsible and liable for employees and creditors.
- Accounts: the branch will generally maintain the business accounts jointly with the parent company.
- Interest: the foreign company has a 100% ownership interest in the Romanian branch.
A branch works as an instrument through which a certain business can extend its actions. When starting this means of doing business, you should be aware of the constant and unlimited liability. Our attorneys in Romania can provide further details on the implications of liability.
Question: How easy is it to set up a branch in Romania in 2022?
The branch has a particular advantage in the fact that the procedure for registration can be simpler than in the case of opening a subsidiary, which will go through all of the usual stages for company formation in Romania.
In case of companies that are not part of the European Economic Area, the authorities will require additional information when registering a branch. The additional details have to do with the company’s registered office and the financial statements (that need to be audited in selected cases). Translations will be required.
One of our lawyers in Romania can give investors complete details about the special requirements for branches of companies from outside the EEA. The submission of the documents is performed by the branch’s representative in Romania, an individual who is duly appointed by the Board of the foreign company (or as per the foreign legal entity’s internal regulations).
Question: I am interested in extending my company to Romania, what are the required steps in order to open a branch in your country?
Answer: In order to set up a Romanian branch in 2022, you have to follow the same steps as those mentioned for the subsidiary but, there is no need to establish incorporation statutes. Some of the documents that are generally required when opening a branch include the following:
- the foreign company’s certificate of incorporation;
- information about its registered office, and other details about the founders, if required.
- the identification details for the local branch representative.
- Power of attorney for the branch representative
- the annual financial statements of the parent company;
- the minutes of the decision to open a branch in Romania.
- the statutory decision for the appointment of the branch representative in Romania.
- other documents, as required by the authorities.
A company name verification and reservation will need to be performed for the branch in 2022. The name will include the Romanian word for branch, as to clearly specify the identity of the business. Credit institutions that open branches in Romania will need to obtain authorization from the National Bank. The experts at our Romanian law firm can assist throughout this process.
The next step to open a company branch in Romania is the registration with the local bureau of the National Trade Register Office. When a foreign company wishes to open more than one branch in Romania, for example, one in Bucharest and one in another city in the country, the documents will be submitted only for one of the branches (as chosen by the one making the submission). Any changes to the branch are to be notified to the local trade register.
Question: We are a farmaceutical company from Israel looking forward to entering the Romanian market. Yet, we do not know whether to start a branch or a subsidiary. Can your lawyers in Romania explain the main differences, please?
Answer: When deciding to incorporate a branch in Romania,you may also consider the main differences between a subsidiary and a branch:
- While a subsidiary has a legal personality and is considered a Romanian entity, the branch is just an extension of the parent company and therefore has no legal personality and no independence.
- The branch has no separate status from the foreign company itself but, a Romanian subsidiary of a foreign company is a Romanian legal person and, consequently, it is subject to Romanian laws.
The liability of the parent company remains of the top issues to take into consideration when choosing to open a branch or a subsidiary in Romania or in any other jurisdiction. As far as the branch is concerned, an important consideration should be given to the empowered individual, the branch’s legal representative in Romania who, through a power of attorney, can gain the right to handle most of the activities of the branch in the country. The parent company would have to ratify this document for the empowerment of the representative for the purpose of establishing liability. One of our Romanian lawyers can give you more information on the usage of a power of attorney and the general powers and limitations of the branch representative in Romania.
The branch has a number of advantages, among which we can emphasize the simpler company formation process, compared to the subsidiary, and the relatively lower set up costs that come as a direct result of the simpler set-up requirements. The foreign company will be required nonetheless to comply with the general branch registration requirements, as set forth by the National Trade Register Office.
Please do not let any legal matters stand in the way of opening or expanding your business. Our lawyers in Romania are here to help and make the incorporation process of a branch hassle-free. They can also help you obtain a Romania VAT number for your new company.
You can reach out to the experts at our law firm in Romania for free consultation!