Setting Up A Branch of Company in Cameroon under OHADA Law
By Agbor Regina Ebob & Jacob A. Akuo
Senior Partners at Dayspring Law Firm
The growth of a company is one of the primary obligations that management owes to the company shareholders. There are various ways in which a company may grow such as acquisition of other companies, merging with other companies, establishing subsidiaries or branches both domestically and abroad, creating new products, improving R&D and the IP portfolio, etc. Some companies use all these tools jointly while others, especially SMEs employ just a few of them.
Of all the above, one of the most used tools to execute corporate growth and expansion is establishing a branch of a company either in the domestic market of the company or abroad, depending on the corporate strategy. This maybe because it is relatively easy, inexpensive, and quick with the same effects of extending the products of the company to a wider client base. In addition to that, the company can continue to maintain a hands-on management of its affairs because contrary to a subsidiary, a branch does not enjoy separate legal personality from the company.
In Cameroon, branches are governed by the OHADA Uniform Act on Commercial Companies and Economic Interest Groups (the Uniform Act). It is very thinly legislated leaving a lot of policy space for OHADA Member States to legislate on certain intricacies such as registration process and the documentation needed to that effect.
The domestic law in this regard in Cameroon is Law N° 2015/018 of December 21, 2015, relating to Commercial Activities in Cameroon. The provisions of the law relating to branches are almost identical to those of the Uniform Act. We shall answer some of the questions regarding a branch as per the Uniform Act and Cameroonian law.
What is a Branch of Company?
The Uniform Act as well as the law on Commercial Activities in Cameroon define a branch of company as a commercial, industrial, or service provider structure owned by a company or a natural person that enjoys a certain degree of autonomy in its management but does not have separate legal personality from the company or natural person.
As per the definition, a branch of company can be set up by a natural person or a body corporate. Its legal personality is directly linked to that of the natural person or body corporate that sets it up. It can be created by either a domestic company or by a foreign company.
There are some nuances between a branch of a domestic company and a branch of a foreign company. A branch of a domestic company can exist during the lifetime of the company. On the contrary, as per the Uniform Act and the law governing Commercial Activities in Cameroon, the branch of a foreign company or foreign natural person can exist only for a maximum period of two years after which it must be affiliated to a domestic company or a newly created company in Cameroon.
However, a waiver for such an affiliation or incorporation of a domestic company can be granted by the Minister of Commerce for another non-renewable maximum period of two (02) years. The inspiration behind this proviso is the lack of legal personality by the branch. In this light, it becomes very challenging to hold a foreign company liable for acts committed by its branch, thus the limited time for existence without domestic affiliation.
What are the motivations behind creating a branch of company?
There are several reasons that can motivate creating a branch of a company both domestic and abroad. One of such reasons is to offer visibility and brand exposure, thus positively influencing a company’s profitability. Secondly, it is relatively inexpensive, easy and quick compared to creating a subsidiary or mergers and acquisitions. Thirdly, the company can maintain control and management of the affairs of the branch which naturally does not have a separate legal personality from the company. In addition, it can be used as a tool to reduce the risk of doing business in the host country by allowing the opportunity to test products or services in new markets without having to set up a company per se.
Moreover, by creating a branch of a company in Cameroon foreign companies can use it to decentralize their business and explore new and potential partnerships within the country. Furthermore, foreign companies can use a branch to execute a short-term contract or project, without going through the hassle of setting up a company and later liquidating it upon completion of the project. Lastly, winding up of a branch is quite easy and less costly compared to liquidation or winding up of a company.
What are the Formalities for creating a branch of a company in Cameroon?
The Uniform Act does not expressly provide for the procedure for registration of a branch. It defers that authority to national law. The law on Commercial Activities in Cameroon does not itself provide for the procedure for registration of a branch but states that, a regulation shall be enacted in this regard. Such a regulation has never been enacted; thus most lawyers and notary publics have relied on practice to execute registration of branches.
Following a decision by the management of the company to set up a branch in Cameroon, the following documents are needed to file an application for registration:
- Resolution by the company’s management to set up a branch;
- Appointment of manager(s) of the branch;
- Criminal records/police clearance of the manager(s) of the branch;
- Identification documents/passport(s) of manager(s);
- Certificate of incorporation of company;
- Articles of Association of the company;
- Branch office plan.
What is the duration of a branch?
As already mentioned above, the branch of a company registered in Cameroon enjoys the same lifespan as that of the company.
On the other hand, the duration of a branch of a foreign company has a duration of two (02) years. This duration can be extended by a waiver of the Minister of Commerce in special circumstances. However, such waiver cannot exceed two (02) years non-renewable.
The special circumstances are put in place by regulation and such a waiver depends on the justification of the foreign company of the need to continue its activities using a branch. For example, a foreign company that wins a bid for a project in Cameroon that has an execution period of three or four years may not see a reason to incorporate a company. They can create a branch and ask for a renewal for two (02) additional years till completion of the project. Justification is particularly straightforward when the project is a government project or government funded and such issues were taken into consideration during negotiations of execution, including the SPV needed for that.
This write-up is aimed at giving the reader a cursory look at what a branch entails. Expert advice is needed once a company (foreign or domestic) intends to carry out commercial activities to determine the most suitable vehicle for such activities.
About the authors
Agbor Regina Ebob is a Co-Founding Partner and head of the Business and Tax Law Department at Dayspring Law Firm, a full-service law firm situated in Douala – Cameroon. She is a bilingual lawyer who enjoys extensive experience in advising and assisting foreign and domestic companies on corporate, business and tax law in Cameroon and the CEMAC Region. Regina holds an LLM in business law and has been practicing law since 2013.
Jacob A. Akuo is a Co-Founding Partner and head of the International Trade Law Department at Dayspring Law Firm. Jacob is a Chevening scholar, a valedictorian of universities and of the Cameroon Bar Exams. Jacob holds three (03) Masters of Laws degrees from British and French universities. Jacob advises companies in the infrastructure, mining, oil & gas, retail, technology and telecommunication sectors, etc. Jacob has been practicing law since 2011.
Also see: https://dayspringlaw.com/the-shareholders-agreement-in-the-ohada-uniform-act/
Also check-out: https://www.investopedia.com/terms/b/branch-office.asp