Opening affiliates and representative offices
Why is it worth opening affiliates or representative offices
With business growing, expansion or structural distribution of activities by territories, functions or specialisation may be considered necessary by the company in order to determine the optimum business development structure.
If it is favourable for business to have a company’s branch with relatively independent decision-making and transaction concluding powers, an affiliate, representative office or the other (subsidiary) legal entity can be founded, which would be structurally detached from the mother company.
Company’s affiliate or representative office would have the rights granted to them by the mother company, but in no event broader than permitted by the laws and other legal regulations.
What are the differences between affiliates and representative offices
- Affiliate. The law allows granting all the rights held by the company, but no more than the latter has, to its affiliate.
- Representative office. Representative office has the complete list of rights defined by the laws, including to represent the company’s interests and to defend them, to conclude transactions and to carry out other actions on behalf of the company, as well as to carry out import and export operations under appropriate conditions.
What one should know before opening affiliates and representative offices abroad
When opening affiliates or representative offices in foreign countries one should know that considering the prevailing principles of international private law, incorporation procedure as well as establishment of the scopes of the rights of affiliates or representative offices most probably will be regulated by the law of the country, in which the latter is to be incorporated. It means that when a foreign legal entity (organisation) is opening an affiliate or representative office in Lithuania, the legislation of the Republic of Lithuania will apply, but if a Lithuanian legal entity decides to open an affiliate or representative office in a foreign country, the regulations established by the legislation of the foreign country, in which the structural unit will be opened, need to be analysed.
Founding procedure in Lithuania
The very founding procedure of legal entity’s affiliate or representative office is simple:
- Governing body of a company (board or head) adopts a decision on founding an affiliate or representative office.
- Statute of the affiliate or representative office is drawn, which among other things establishes the competence of the affiliate or representative office.
- Statute together with other additional documents is submitted to the notary for certification.
- Documents certified by the notary are included into the Register of Legal Entities.