Can a branch refuse to take instruction from the HeadQ?
Yes, there are cases in which the Branch REA does NOT want to follow instruction of the HeadQ. Although this is rare, let me explain.
How can this happen?
Example, HeadQ has formed a branch with 1 REA as resident manager and he holds 40% of the shares. HeadQ has 2 REAs who owns 30% each. When one of the senior REAs in HeadQ passes on the shares to his descendant (REN), it becomes 30% (REA HeadQ), 30% (REN HeadQ) and 40% (REA Branch). When the REN combines his share with 40% of the Branch, he takes over the branch. The branch REA dominates the business at the branch because he offers bigger “deals” with the REN who requires him to continue business in the branch.
Argument – liberalization scheme allows the non-registered entity (in this case 30% held by the REN) to continue holding this shares. However, the bigger share holding by the 2 remaining REAs – branch REA is 40% and HeadQ REA is only 30%. Despite being 70% (>51%), the branch REA is higher than the HeadQ REA. The Branch REA becomes more powerful than the HeadQ REA.
Read more about liberalization here.
Therefore, approval of the Board on this matter requires the careful evaluation of the situation under various laws – Companies Act and VAEP Act.
As business is about profit, the branch profit would motivate the branch to break away from the HeadQ when it is lucrative enough to do so. Therefore, the sustainability of the branch would require a more balanced system of power distribution to enable both to stay together. It take a lot to foster synergy with the HeadQ at branch level and vice versa.