What are the main differences between a subsidiary and a branch?
The subsidiary and the branch represent two useful options for starting a business in Morocco. Both are linked to a parent company but have important differences. The most important difference being that the subsidiary is an autonomous legal entity, distinct from the parent company and with legal personality (although the subsidiary’s shares may or may not be wholly owned by the parent company). The branch, on the other hand, does not have legal autonomy. Therefore, only the subsidiary can acquire contractual rights and obligations in its own name. From an economic point of view, the establishment of a branch does not require the contribution of share capital, whereas a subsidiary does; although, in the case of the SARL, the most common corporate form, there is currently no minimum capital requirement. The costs of incorporation also vary but depend more on the complexity of the process (appointment of directors, articles of association, composition of the organs) than on the share capital. Another aspect to be taken into account is the liability of the parent company for the obligations incurred by the branch, as it is not an autonomous entity; the liability of the shareholders of the subsidiary, on the other hand, is in principle limited to the share capital.
Which legal entity is more beneficial for a business?
Taking into account all the differences that exist between a subsidiary and a branch, the choice of the most appropriate legal entity really depends on the case in point. In general, from a strategic perspective, the branch can be a first step towards the establishment of an economic activity in Morocco, without the need to create a company. It allows the investor to evaluate the progress of the business in small steps. From a purely administrative point of view, the process of setting up a branch is simpler than that of a subsidiary. However, while the subsidiary requires a higher investment, it also has its advantages over the branch. In terms of liability, for example, the parent company (or shareholders) is in principle not liable for the obligations incurred by the subsidiary. In the event of litigation, losses or liquidation, the parent company, or, if it exists, the group of companies, is generally not affected unless there are grounds for lifting the corporate veil. The decision to set up a subsidiary in Morocco is generally aimed at companies and groups of companies that intend to remain in the North African country for a long period of time.
Is it necessary to have a Moroccan partner to invest in Morocco?
Unlike some other countries in the Middle East and North Africa region, Moroccan law does not contain any legal obligation requiring investors to have a local partner to set up a company in Morocco. Sometimes, the choice of the right partner and the subsequent negotiations with them can represent the biggest challenges in the new endeavour. The corporate participation of a local partner can, in principle, be substituted by hiring Moroccan workers with a good knowledge of the local market. However, the presence of a local partner may be indispensable where local regulations impose limitations on foreign investment or the access to local networks and the knowledge of local business practices is a relevant asset.
Are there any restrictions for foreign investors in Morocco?
In general, foreign investments are not subject to restrictions, regardless of the type of company you decide to set up in Morocco. Some sectors are an exception, such as agriculture, fisheries and the audio-visual sector. Although there are no significant differences between local and foreign investments in Morocco, it is considered necessary to know and obey by the rules governing the foreign exchange market, i. e. the requirements for repatriating investment capital, income from capital and dividends. In Morocco, the legal framework that protects and regulates foreign investments is the “Investment Charter” (Charte de l’Investissement).
