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CS Executive · Setting Up of Business, Industrial and Labour Laws · Setting up of Branch Office, Liaison Office and Wholly Owned Subsidiary by Foreign Company

Nordic AB wants to enter India. It is deciding between a wholly owned subsidiary and a liaison office. Which feature clearly favours the wholly owned subsidiary route?

A wholly owned subsidiary is a separate Indian company and can carry on commercial, trading or manufacturing activity within FDI policy. A liaison office cannot undertake commercial activity or earn income, so for actual business operations the subsidiary is the better route.

  1. AIt can carry on commercial and manufacturing activities in its own right as a separate Indian legal entityCorrect
  2. BIt cannot earn any income in India
  3. CIt requires no registration with the Registrar of Companies
  4. DIt is only a representative office of the parent with no separate identity

Explanation

A wholly owned subsidiary, incorporated as an Indian company, is a separate legal entity that can carry on business, including manufacturing and trading, within the permitted FDI policy. A liaison office cannot earn income or do commercial activity, so option B describes the liaison office. Option C is wrong because a subsidiary must be registered under the Companies Act, 2013.

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