Affiliate/Branch of a Foreign Company in Estonia
A foreign business association may register its branch in the Estonian Business Register. The branch is not a separate legal entity, and all responsibility for the activities of the branch and its obligations is borne by the foreign company.
A foreign company may establish branches and open representative offices by the decision of the general meeting of participants adopted by a majority (not less than two thirds of the votes of the total number of participants of a company).
In order to open a branch in Estonia, it is necessary that the foreign enterprise select the head of the branch and authorize him to open a branch in Estonia. If the branch has several managers, the branch can represent each of them. The branch should also select an activity according to the Classification of Economic Activities in Estonia.
The branch can be registered in the Estonian Commercial Register through a notary or electronically in the electronic business register. A branch of a foreign commercial partnership is entered into the commercial register on the application of the branch manager. The following documents should be attached to the application:
- Official certificate of the parent company (extract from the business register or copy of the certificate of registration);
- Permission to establish a branch office if required by law;
- Power of attorney confirming the authority of the branch manager, or copy of the decision on appointment of the manager;
- A copy of the Articles of Association of a Commercial Association or the Agreement of an Association certified in accordance with the laws of the country of the location;
- Communication data (phone numbers, homepage address, e-mail address);
- Notarised signature samples of executives.
Documents must be submitted in Estonian and the translation must be certified by a sworn translator. If necessary, documents submitted to the registration department must be certified by an Apostille or legalized.
The branch is essentially a branch of the parent company, but is not a separate legal entity. The branch can perform all functions of the main company or their part, depending on the wishes of the main company. The branch is obliged to keep its accounting and reporting. The branch manager is appointed by the parent company, but may be limited by the law of jurisdiction in which the branch is established. For example, in Estonia, the branch manager can only be a natural person and must reside in Estonia, the EU, or Switzerland.
The advantages of the branch are primarily the simplicity of the institution. A branch of a well-known and reputable enterprise may be preferable to the creation of a new company. The branch is also much more closely connected with the main company.
The disadvantage of the branch is that it is not a separate legal entity. This means that the parent company is responsible for the actions of the affiliate, which can be risky, especially when starting operations in a new country. At the same time, the liability of the subsidiary is limited to its own capital and even in case of bankruptcy, the parent company is not threatened.