What’s a branch?

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A branch is a satellite operation established and maintained by a commercial enterprise for many different reasons, all related to increasing the efficiency and profitability of its operations. Companies maintain their headquarters in a single location and direct the activities of their branches so that these locations can establish a physical presence for the company in locations that are sometimes distant from the headquarters. Branches, however, are not autonomous. While it can often conduct most or all of the transactions normally handled by headquarters, a branch does not have the authority to change or make policies or act independently of headquarters.

The operation and activities of a branch depend on the nature of the company. Bank branches, for example, are opened with the aim of establishing a physical presence in new areas convenient for existing and potential customers. They are usually equipped with all the security facilities and features available at the head office such as safes and lockers. Customers who do business at a bank branch generally have all the services they would expect at the bank’s headquarters.

Other types of companies will also open branches, but for different reasons. Appliance manufacturers, for example, will open relatively few strategically located branches, also called authorized service centers, and use these as hubs to handle repair requests. Manufacturers of automobiles and other transportation vehicles will open branch manufacturing facilities as well as sales offices, but will also authorize sales franchises that incorporate the repair and customer service function. Branch operations provide most of the revenue stream for fast food companies, and many other restaurants also have branch operations.

Companies that provide financial services, such as brokerages and insurance companies, will also open decentralized branches to serve as a base of operations for agents who will service existing customers as well as sign up new customers. While often a branch office will not have decision makers with the authority to act outside the company’s stated policies when dealing with customer service disputes, it will act as the first point of contact with customers in resolving routine issues as well as identification of more serious problems. . This often benefits customers by offering them face-to-face contact with the company, and it benefits the company by solving routine problems locally, without spending time at headquarters.

A company must consider many issues when deciding the location of a branch office. Obviously, the office must be conveniently located to serve new and existing clients. Most companies have standards for an area’s population, median income, and other demographics pertinent to the company’s product or service. Businesses should also consider tax and similar issues. Whether purchased or leased, with independent contractors or employees, a branch office represents a regular expense that must be met.

In the United States, the existence of a single branch in a state establishes a legal presence in the state, both for service of process and for collection of sales taxes. Sales tax can be a significant issue for companies that do a great deal of interstate mail order business, where sales tax is generally exempt. The existence of a legal presence in the state removes the sales tax exemption.

Historically, statutory concerns have also influenced the decision to open branches, although these restrictions have mostly been lifted. Until nearly the end of the 20th century, for example, American statutory and regulatory systems were hostile to the concept of branch banking in general, and interstate branch banking was completely prohibited in the second half of the 20th century. These restrictions were finally lifted in the early 1990s.

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