Template:Branches and affiliates

Branches and affiliates

Few things are apt to cause more confusion, fear and loathing for less good reason the legal status, as regards itself, of a company’s various branches. This is apt to confuse muggles, which on a busy day can be intensely frustrating for a busy solicitor, but on a slow one is fertile grounds for a little sport at the expense of our non-magical friends. You will be surprised how often one is asked to review, approve or even sign a contract, keep-well agreement or service level agreement between a branch of a company and its head office. The best response is just to sign it, but purists will find this at least aggravating and in many cases a betrayal of the attorney’s sacred oath.

Branches: If a company is a person, think of a branch like an arm or a leg. A “branch” is a single office or presence of a larger legal entity. It does not have its own legal personality or creditworthiness — like an arm or a leg it is part of a greater whole. A branch may just be a single premises of the company — the “Muswell Hill branch of Sainsbury’s”, for example — but in the world of high finance it is usually whole presence of that legal entity in a given city or country.

Affiliates: By contrast, a company’s affiliate is a related but separate legal entity. If a company is a person, its affiliate is its parent, child, or sibling. Parent affiliates are actually even called parents. Children are wholly-owned subsidiaries, ugly stepchildren and bastards are majority-owned subsidiaries and siblings are known as companies “under common ownership”. There is plenty of scope for ugly sisters, black sheep and long-lost cousins from Australia, as you can imagine.

Proper affiliates may be consolidated from a financial reporting perspective, but generally (and unless it has specifically agreed to) an affiliate is not responsible for performing the obligations of its any of its affiliates, unless it agrees to do so by contract (such as a guarantee).