Branch Opening and Headquarters-Branch Relationship

Branch Opening and Headquarters-Branch Relationship: Who is Responsible for Which Debts?

As companies grow, one of the most common ways to access new markets, get closer to customers, and expand their operations is by opening branches. However, in practice, the most confusing point boils down to this question:

"Who is responsible for the debts incurred by the branch: the head office, the branch, or the branch manager?"

This article will examine the branch opening process , the relationship between the head office and branches , and liability for debts within the framework of the Turkish Commercial Code , tax and social security legislation , and established practices

1. What is a Branch? Legal Definition and Key Characteristics

First, it is necessary to clarify the concept of "branch". According to the Turkish Commercial Code , a branch is defined as a unit that conducts commercial activities continuously in a separate location from the head office, has its own organization and management , but is subordinate to the head office

We can summarize the branch's key features as follows:

the same trade name as the head office (usually with additions such as "Istanbul Branch", "Ankara Branch").
It operates as a separate commercial enterprise ; it may have its own staff, its own lease agreement, and its own suppliers
However, it does not have legal personality. Legal personality belongs to the central company.
It is registered in the commercial registryand may have a separate registration number, but this does not make it a separate company.
Often, transactions at the tax office the branch's tax number , but the company itself is still the taxpayer.

Therefore, legally, a branch an extension of the head office and is not a "separate legal entity," but rather a point of operation of the same legal entity in a different location.

2. Branch Opening: Procedures and Points to Consider

Opening a branch shouldn't be perceived in practice as simply "we rented a place and put up a sign." There are a series of legally required steps that need to be completed

2.1. Decision of the governing body

In a joint-stock company, this is usually done by a decision of the board of directors.
In a limited company, a decision is made by the general assembly or the board of directors .
In this decision:
- The branch address is,
- Branch title (added to the main branch),
- Who will be the branch manager,
- The branch manager's authority to represent and bind the company
  must be clearly stated.

2.2. Registration in the commercial registry

The branch is registered by applying to the trade registry office in the location where the branch is situated .

It is registered
It is announced in the trade registry gazette
MERSIS records are opened.

This registration makes the existence of the branch and its authorized representative visible to third parties

2.3. Tax office, social security institution and municipality procedures

A branch tax identification number is obtained from the relevant tax office for the branch .
If workers will be employed at the branch, a Social Security Institution (SGK) workplace number will be created.
Business opening and operating licenses, environmental cleaning and sanitation fees, advertising tax, etc., are processed through the municipality.

All these transactions confirm that the branch is an organized and continuously operating unit; however, the main determining factor in terms of who owes the debts is the fact that the branch does not have legal personality.

3. The Legal Basis of the Head Office-Branch Relationship: The Principle of Single Legal Personality

The most critical concept for understanding the legal relationship between the branch and the head office is the principle of "single legal personality".

The head office and branches are part of the same company.
A branch a separate entity ; an organized operational unit.
Therefore:
- The transactions carried out by the branch,
- The contracts signed by the branch,
- The staff employed by the branch,
- The branch's borrowings
  originally belong to the head office.

Therefore, for banks, suppliers, landlords, and employees, the primary point of contact is the company itself, not the branch.

4. Who is responsible for the branch's debts? Key distinction

The key question here is:

“Who is responsible for the transactions and resulting debts of the branch: the head office, the branch manager, or just the assets of the branch?”

4.1. The principal debtor is always the central company

Since a branch is a unit without legal personality:

Contractual obligations,
Tort debts,
Debts relating to employees,
The central company is primarily responsible for tax and social security debts .

A third party may assert a claim against all of the company's assets ; it is not limited to just the branch's assets.

For example:

If the Antalya Branch buys goods from a supplier and fails to pay its debt,
The creditor is not limited to the Antalya Branch inventory or bank account,
The company can also initiate enforcement proceedings against assets located at its headquarters or in its branches in other cities.

4.2. Do the branch manager/employees have personal responsibility?

Under normal circumstances:

Branch managers and employees are the bodies/assistants that act on behalf of the company .
Therefore, they are not personally liable for company debts.

However, in exceptional circumstances:

Deliberately engaging in unlawful acts, causing harm to the company,
Forged documents, collusive transactions,
In cases of tax, social security, and public debts, special liability provisions may arise in the capacity of a legal representative

If the branch manager acts as the legal representative, personal liability may arise for certain public receivables. However, this applies only in exceptional circumstances and when the conditions stipulated in relevant special laws are met, and not in general commercial debts.

5. Branch Liability According to Debt Types

Every transaction made by the branch can generate a debt; separating these debts by type provides great practical convenience.

5.1. Obligations arising from the contract

The branch's daily commercial activities include:

It enters into lease agreements (branch office, warehouse, store),
It signs contracts for the purchase of goods/services with suppliers,
The bank arranges loans and POS agreements
They sign logistics, transportation, and leasing contracts.

The person who signs these contracts is most often the branch manager or branch staff. However:

the signature within the scope of the authority to represent the company ,
The party to the contract and the debtor is the company, not the branch or branch manager.

Therefore, the creditor must collect their debt:

Even if it says "X Inc. Antalya Branch," legally the debt will be collected from X Inc.
If deemed necessary, the monitoring can also be carried out at the company's headquarters.

5.2. Obligations arising from torts

Examples of torts:

Branch employee causing damage to a third party with a company vehicle,
A promotional campaign by the branch violated personal rights
A fire that broke out in the branch warehouse damaged a neighboring business.

In these cases:

The company (in its capacity as operator, employer, or organizer) is primarily responsible for the damage
The personnel who actually committed the act may also to the extent of their personal fault ; however, the third party often holds the company directly responsible.

5.3. Obligations arising from labor law

Branch, most of the time:

It employs staff,
All employment-related matters, including hiring, firing, overtime, annual leave, etc., are handled through the branch.

Nevertheless:

The parties to an employment contract the company and the employee.
With regard to employee claims (severance pay, notice pay, overtime pay, annual leave pay), the debtor is the company itself.

The employee can file the lawsuit at the branch address, or, since the company is legally the debtor, they can direct the lawsuit against the entire firm.

6. Responsibility for Tax and Social Security Debts

Branches also play an important role in tax law and social security legislation.

6.1. Tax debts

a separate tax identification number assigned to a branch,
The natural or legal entity liable for tax is the company itself.
The company is the debtor in terms of corporate tax, VAT, withholding tax , etc.

With this:

Legal representatives (e.g., board members, in some cases the branch manager),
If tax debts are not paid and collection becomes impossible, personal liability may arise according to the specific provisions in the relevant tax laws .

6.2. Social Security premium debts

Employees working at the branch:

Insurance premiums,
Notifications of work accidents and occupational diseases,
Employer responsibilities
primarily the responsibility of the company.

Although the branch office has a separate number:

Since the employer is a company according to SGK (Social Security Institution)
The company's assets are generally responsible for the Social Security Institution's (SGK) receivables.

Furthermore, in accordance with the relevant legislation, provisions regarding the personal liability of legal representatives (and in some cases, the branch manager) may come into play.

7. Foreign Company Branches: Who is Responsible for Debts in Türkiye?

Foreign company branches operating in Turkey are also a common occurrence in practice.

The typical scenario here is:

A foreign company (for example, a limited liability company based in Germany),
a branch and registers it with the trade registry.
The branch operates continuously in Türkiye.

In this situation:

Contracts entered into and debts arising therefrom by the Turkish branch of a foreign company,
Legally, it binds the foreign parent company.
The creditor can pursue legal action against the branch in Türkiye, as well as seek redress/enforcement proceedings against the foreign headquarters.

In summary, whether the branch is "foreign" or "domestic" does not change the fundamental principle:
the branch has no legal personality, and the parent company is responsible for its debts.

8. Filing a Lawsuit on Behalf of the Branch and a Lawsuit Against the Branch

One common issue encountered in practice is the filing of lawsuits against the branch.

8.1. Against whom should the lawsuit be filed?

The main party is always the company itself. However;

Even though the phrase "X Inc. Izmir Branch" was used in the lawsuit,
Courts generally treat this a lawsuit filed against the company .
However, the most correct practice is to write the company name in full and accurately.

8.2. Competent and authorized court

In disputes arising from transactions carried out by a branch,
the court located where the branch is situated jurisdiction .
In addition, the location of the company's headquarters is generally considered authoritative.
The jurisdiction is determined according to the type of dispute (commercial court, labor court, consumer court, etc.).

9. The Responsibility of the Branch Manager: Where Does it Begin and Where Does it End?

The branch manager is the most critical link between the headquarters and the branch. Their duties include:

To carry out branch operations,
Managing personnel,
Signing contracts within the scope of the authority to represent the company,
Making daily business decisions.

9.1. General rule: Acts on behalf of the company

Branch manager:

As long as he/she acts on behalf of the company within the scope of his/her authority,
The company is responsible for the debts incurred .
The manager does not personally incur any debt.

9.2. Exceeding or abusing authority

If the branch manager:

He exceeds the limits of his authority,
He/She acts contrary to company instructions
If they intentionally perform harmful actions,

central company:

The defendant is generally still liable to the third party (in cases of exceeding the scope of representation, the good faith of the third party is important)
However, the responsibility can later be transferred (internal relationship responsibility).

For example:

Because of the branch manager who signed a loan agreement outside of his authority and thus indebted the company,
Even though the company is indebted to the bank,
The company can file a compensation claim against the manager for internal conflict of interest.

10. Perception of Responsibility Towards the Public and Customers in the Head Office-Branch Relationship

Often, the only thing customers notice is the branch sign

The customer picks up the product or service from the branch
The branch address is written on the invoice
He/She will deal with the branch.

But legally:

When the product turns out to be defective
When the service is provided defectively,
When liability arises towards the consumer, the entire company is responsible , not just the branch.

The consumer may file a complaint with the Consumer Court or arbitration board:

Even if he/she knows the branch address,
The lawsuit/application must be filed using the company name.

The mere fact that a branch is located in a different city does not diminish the company's responsibility; on the contrary, the company, together with all its branches, is considered a single commercial entity

11. Common Mistakes in Practice

The most common mistakes encountered during branch opening or branch operations are as follows:

The branch being mistaken for a separate company
- Suppliers or lessors act as if the branch alone is responsible for the debt.
- However, the real debtor is the company itself.
The branch manager's authority limits are not clearly defined
- When the powers of representation are not clearly stated in the signature circular or trade registry,
- This creates hesitation on the part of creditors and weakens internal company control.
Using incorrect or incomplete titles in contracts
- If the contracting party is left out, for example "X Inc. Branch",
- It may be necessary to deal with title corrections in future enforcement and litigation processes.
Branch financial records are not integrated with the central office
- Accounting deficiencies create serious risks in terms of tax and social security.
Relying on simple practical assumptions in legal classification
- The misconception that "if a branch doesn't pay its debt, at most they'll seize the branch's assets"
- It jeopardizes the company's entire assets and disrupts risk management.

12. Legal Considerations When Opening a Branch (Checklist)

Let's prepare a brief legal checklist for companies planning to open branches :

Decision-making process
- A decision must be made by the board of directors/managers.
- The decision must clearly state the branch address, title, branch manager, and their responsibilities.
Commercial registry and MERSIS procedures
- The branch must be registered with the trade registry of the location where it will operate.
- An announcement must be made in the trade registry gazette.
Signature circular and power of representation
- The authority limits of the branch manager and other signatories should be clearly defined.
- If authorization limits are required, such as "double signature," "amount limit," and "specific contract types," these should be clearly stated.
Tax office and social security procedures
- The branch must be registered with the tax office and a tax identification number must be obtained.
- SGK workplace registration must be completed.
Lease and supply contracts
- The contracting party must clearly state the company's full name (for example: "ABC Food Industry and Trade Inc. Istanbul Branch").
- If possible, the contract should explicitly state that "the creditor may also apply to the company's other branches and headquarters" (this is legally possible, but it would be a simplification).
Internal guidelines and instructions
- Internal instructions defining the authority and responsibilities of branch managers and employees should be put in writing.
- Central approval should be required for risky transactions (loans, guarantees, mortgages).
Legal advice
- Obtaining professional support from a lawyer before opening and during the setup of a branch,
- It prevents high-value disputes that may arise in the future.

13. Frequently Asked Questions (FAQ)

1. Is only the branch responsible for the branch's debt, or is the head office also responsible? No, the branch is not solely responsible. The branch is a unit without legal personality. The company (head office) is primarily responsible for the debts arising from the branch's transactions . The creditor can claim all of the company's assets.

2. Can a branch manager be held personally liable for the branch's debts?
As a general rule, no. The branch manager acts on behalf of the company, and the company is responsible for the debt. However, in exceptional cases such as abuse of power, intentional damage, fraudulent transactions, and special legal representative liability for tax and social security debts, personal liability may be imposed on the manager.

3. Does having a separate tax number for each branch mean the debt is limited to that branch only?
No. The tax number is an administrative and technical tracking tool. From a tax law perspective, the company itself is the liable party. The branch number only serves to distinguish which activity originates from which location.

4. If the contract states "Party: X Inc. Bursa Branch," am I obligated to file the lawsuit and enforcement proceedings only in Bursa?
No. The court in the location of the branch may have jurisdiction; however, in the location of the company's headquarters . You can also direct the enforcement proceedings against the company's other assets, its headquarters, or other branches.

5. I have a receivable from a branch of a foreign company in Turkey. Can I only sue the Turkish branch? Even if you have a legal relationship with the company through the Turkish branch, the foreign parent company is responsible for the debt . It is possible to file a lawsuit against the branch in Turkey within the framework of procedural rules and international private law provisions; however, this may also bind the parent company. A separate legal assessment is required for each specific case.

6. What happens to the branch's outstanding debts if the branch is closed?
The closure of a branch does not mean the dissolution of the parent company, which is a legal entity. Therefore, the company's liability for debts incurred during the branch's operation continues. Even if the branch is closed, creditors can pursue the company's entire assets to recover the debts it caused.

Conclusion: Opening branches expands responsibility, but it doesn't limit it

Opening a branch, for companies:

Market expansion,
Getting closer to the customer,
optimizing operating costs
; however, it is not a mechanism that geographically divides responsibility.

On the contrary:

The head office and branches are considered a single legal entity
The entire company is responsible for all contractual, tort, employment, tax, and social security debts of the branch .
The branch manager, as a rule, is only in a representative role; personal responsibility arises only in exceptional and special circumstances.

Because;

When opening a branch,
When borrowing through a branch,
When granting authority to branch managers

Both company management and the parties involved must correctly understand the legal framework, as this will significantly reduce potential serious disputes and costly lawsuits in the future.

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