A representative office is a business office with limited functionality that is opened in a jurisdiction where the business is not yet licensed to operate. This type of office can be opened in certain domestic situations, but it has a specific legal definition in international trade relations that is recognized in most countries around the world. Countries typically define a representative office in the same way but differ somewhat in the types of activities that the office is authorized to conduct in the country.
Businesses must be licensed, or registered, to operate in every jurisdiction in which it plans to have a presence. A presence is not simply the sale of goods through an agent in the jurisdiction, like a retail store, but refers to actual operations in the jurisdiction, such as maintaining an office or a production facility. In the U.S., a business must first register with a state to begin operations and then must register as a foreign entity in any state where it plans to have a presence. A U.S. business that wants to establish an office or a facility in China must properly registered in the U.S. and also obtain permission from China to operate as a foreign entity within its borders.
In international trade relations, a foreign entity that wants to set up operations in another country seeks permission to set up a representative office or a branch office. A representative office is only authorized to conduct certain limited activities in the host country. This may include maintaining a presence to introduce people to the business’ products, attending trade shows and distributing samples, doing market studies, and conducting other sorts of preliminary activities that do not include manufacturing or selling products.
A branch office has significantly more authority to conduct business. It can set up actual operations, buy and sell products, and perform most of the functions that a registered company is authorized to do by law. Businesses that set up branch offices in a country have made a commitment to remain in that market, since a license to set up a branch office typically costs significantly more than one to set up a representative office.
The most important domestic situation where the term representative office is used is in banking. Banks are required to obtain a license to operate from the jurisdiction that will regulate their activities. In the U.S., this can be a state government. If licensed by a state, the bank can only operate within that state. If it wants to establish a presence in another state, it can set up a representative office, but the office will only be able to provide certain types of customer service, such as executing loan documents, and cannot accept deposits or conduct any other money transactions.