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What is a Branch Office?

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  • Written By: Dale Marshall
  • Edited By: Kristen Osborne
  • Last Modified Date: 01 December 2016
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A branch office is a satellite operation established and maintained by a business enterprise for any of a number of different reasons, all related to increasing the efficiency and profitability of their operations. Enterprises maintain their headquarters in a single location and will direct the activities of their branch offices, so these locations can establish a physical presence for the enterprise in locations sometimes far removed from the headquarters. Branch offices are not autonomous, however. Although it may often conduct most or all of the transactions normally dealt with by the headquarters, a branch office does not hold the authority to change or make policy or otherwise act independently of the headquarters.

The operation and activities of a branch office depend on the nature of the enterprise. Banks' branch offices, for example, are opened for the purpose of establishing a physical presence in new areas convenient to existing and potential customers. They are generally equipped with all the security facilities and features available at the headquarters, such a safety deposit boxes and vaults. Customers who do business at a bank branch generally have available to them all the services they could expect at the bank's headquarters.

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Other types of enterprises will open branch offices as well, but for different reasons. Manufacturers of consumer appliances, for example, will open a relatively few strategically located branch offices, also called authorized service centers, and use them as hubs for handling 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 customer service and repair function. Branch office operations provide the bulk of the revenue stream for fast food enterprises, and many other restaurants also have branch operations.

Enterprises that provide financial services, such as brokerage houses and insurance companies, will also open decentralized branch offices to serve as bases of operations for agents who will serve existing clients, as well as enroll new clients. While a branch office won't often have decision makers with the authority to act outside the enterprise's stated policies when handling customer service disputes, it will act as the first point of contact with customers in resolving routine issues, as well as identifying more serious issues. This usually benefits clients by giving them a face-to-face contact with the company, and benefits the company by having routine issues handled locally without any expenditure of time at the headquarters.

A company must take many issues into account when deciding on the location of a branch office. Of course, the office must be situated so as to serve new and existing customers conveniently. Most companies have standards as to an area's population, median income and other demographic data germane to the company's product or services. Companies must also consider tax and similar issues. Whether purchased or leased, staffed with independent contractors or employees, a branch office represents a regular expense that must be met.

In the United States, the existence of even a single branch office in a state establishes a legal presence in the state both for service of process, as well as collection of sales taxes. Sales tax can be a significant issue for companies that do a great deal of interstate mail order business, on which states sales tax is usually 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 branch offices, although such restrictions have mostly been repealed. Until almost the end of the 20th century, for instance, American statutory and regulatory systems have been hostile to the concept of branch banking in general, and interstate branch banking was forbidden completely in the latter half of the 20th century. These restrictions were finally lifted in the early 1990s.

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