A representative office is a limited-function business office opened in a jurisdiction where the company is not licensed to operate. It has a specific legal definition in international trade relations and is authorized to carry out only certain activities. A branch office has more authority to conduct business and is committed to staying in the market. In the banking sector, a representative office can provide certain types of customer service but cannot accept deposits or other money transactions.
A representative office is a business office with limited functionality that is opened in a jurisdiction where the business is not yet licensed to operate. This type of office may be opened in certain domestic situations, but has a specific legal definition in international trade relations which is recognized in most countries of the world. Countries typically define a representative office in the same way, but differ slightly in the types of business the office is authorized to carry on in the country.
Businesses must be licensed or registered to operate in each jurisdiction where they plan to have a presence. A presence is not simply the sale of goods through an agent in the jurisdiction, such as a retail store, but refers to actual operations in the jurisdiction, such as maintaining an office or manufacturing facility. In the United States, a business must first register in one state to begin operations and then must register as a foreign entity in any state in which it plans to have a presence. A US company wishing to establish an office or facility in China must be duly registered in the United States and also obtain authorization from China to operate as a foreign entity within its borders.
In international trade relations, a foreign entity wishing to establish operations in another country requests permission to set up a representative office or branch. A representative office is authorized to carry out only certain limited activities in the host country. This may include maintaining a presence to introduce people to the company’s products, attending trade shows and distributing samples, conducting market studies, and performing other types of preliminary activities that do not include manufacturing or sale of products.
A branch office has much more authority to conduct business. It can set up real operations, buy and sell products, and perform most of the functions that a registered company is permitted to perform by law. Companies that open branches in a country are committed to staying in that market, as a license to open a branch typically costs significantly more than one to open a representative office.
The most prominent internal situation where the term representative office is used is in the banking sector. Banks must obtain a license to operate from the jurisdiction that will regulate their activities. In the US, this can be a state government. If licensed by a state, the bank can only operate within that state. If you want to establish a presence in another state, you can establish a representative office, but the office will only be able to provide certain types of customer service, such as executing loan paperwork, and cannot accept deposits or other money transactions.
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