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Legal briefing notes

The opening of branches and representatives

One of the ways to expand your business and reach a new level is to open branches and representative offices. Legally with the help of article 55 of the Civil Code of the Russian Federation, important concepts and aspects are established that distinguish between enterprises and representative offices. It is necessary to understand that they are not separate legal entities and so they function according to the procedures of the organization that created them.

The role of branches and representative offices in developing business

  • Representative offices are territorial units of a certain legal entity. Their main role of them is to represent and protect the corporate interests of a certain structure.
  • Branches, as well as representative offices, are territorial units of a legal entity that perform a partial or full number of tasks of the company. They are located outside the head office, often in other cities or countries. They have almost the full functionality of the company as well as the functions of representation.

Paragraph 1 of clause 3 article 346.12 of the Tax Code of the Russian Federation regulates the fiscal policy of organizations that have branches. According to the legislation, they do not have the right to use the simplified system of taxation. A natural consequence of this is the mandatory transition to a unitary tax system after the establishment of a branch. Heads of representative offices and branches are assigned and act according to the power of attorney of the legal entity, whose initiative was the creation of an additional corporate entity.

The responsibility

For regular fiscal control, territorial units must be registered in the tax authority. Otherwise, the organization faces a fine (article 126 of the Internal Revenue Code of the Russian Federation).

How to open a branch or representative office

Before opening an additional branch or representative office, the main prospects should be analyzed and the main tasks should be formed that the new structure will carry out. An important step is to inform the controlling tax authority about the opening of a new corporate entity. Violation of the specified procedure for opening branches and representative offices can lead to tax an implication that is why for this task you should hire experienced professionals.

The procedure for opening a branch or representative office

The procedure for opening a branch or representative office can be represented as follows:

  • Preparation of the meeting with the inclusion in its agenda of the issue of opening the branch (representative office).The main feature at this stage is the correct choice of the authority that will make the decision to open. For example, in OOO, such a decision is approved through a general meeting of participants with a qualified majority of votes (2/3). The charter of the company may prescribe a different decision-making system with a large number of votes. In AO this falls within the competence of the board of directors by default if the charter does not establish for the decision of this issue by the collegial executive body of the AO (for example, the board). In other legal entities, the decision to establish a branch (representative office) is usually made by the supreme authority. Another procedure may be regulated by the charter of the company. Moreover, it is important to observe the procedure for summoning a meeting established by law or the charter.
  • Such fundamental documents as the branch charter (representative office) and the draft of a new edition of the charter of a legal entity (for OOO) as well as other fundamentally important papers should be prepared in advance and presented at the meeting. It is important to focus on the legal position of a branch (representative office) and its functions, rights and obligations, the procedure for management and distribution of corporate property as well as the status of its employees. These parameters should be carefully designed in order to avoid misunderstanding and dysfunction of the entity.
  • The meeting implies a quorum and a vote of approval of the branch charter, regulating the procedure for its activities and solving other topical issues. The tax authority must be notified of the opening of a branch (representative office) promptly. It is advisable to do this immediately after the decision to create a separate entity is agreed upon by authorized persons.
  • After the successful conclusion of the work at the stages indicated above, the head of the branch or representative office should be assigned. A power of attorney is issued by the sole executive body of a legal entity. The precise wording of the available powers and responsibilities is important in order to avoid the abuse of authority, but at the same time to provide the manager with the opportunity to quickly resolve routine issues at his level without frequently involving senior management in everyday operations.

The advantages of working with us

Working with the specialists of the Tsentralny Okrug Law Firm gives lots of opportunities

  • Consultations of specialists and free rapid assessment of the more suitable for the client option of a territorial unit;
  • Full-scale analysis of documentation;
  • Full accompaniment of the procedures of opening a branch (representative office).
  • Efficient and responsible case management and prompt resolution of issues.
  • Money-back guarantee in case of the results will not be achieved;

Due to our vast experience in the area of corporate law, the specialists of the Tsentralny Okrug Law Firm efficiently and responsibly accompany the procedure of establishing the branch or representative office as well as advise on all issues of interest.

Author is Irina Minakova

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