What are the advantages/disadvantages of Liason, Branch and wholly owned subsidiaries?
Rohit Lohade
Expert guidance on company registration and business setup processes in India for entrepreneurs and investors.
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Description
Advantages
Disadvantages
Other Comments
Branch Office
An extension of Foreign set up in India, which can undertake some but not all of the same activities as Foreign company. The scope of its permitted activities will be determined by the permission that is granted by the Reserve Bank of India (RBI).
Can perform some revenue generating activities in India, unlike a liaison office (see below).
It is a separate legal entity for certain purposes.
Foreign Company may be exposed to unlimited claims and liabilities in India owing to branch office operations.
Restrictions on range of activities, which are subject to RBI approvals.
Formalities and legal set-up costs are involved.
Several airline and shipping companies have established Indian branch offices.
Tax structuring possible as branch office is taxed separately in India. The rate of tax is higher than the rates applicable to companies.
Liaison Office
Set up primarily to give an India face to Foreign Company and for marketing purposes.
Fewer ongoing formalities although there are set-up costs.
No separate legal entity but does provide a formal presence for in India.
Cannot trade or generate revenue in India.
Foreign Company may be exposed to claims and liabilities in India.
Must be funded by Foreign Company only.
Minimum period of profitability and net worth requirement.
Subsidiary Company
Set up primarily if the Foreign wants to start the operations in India.
Can be setup under automatic route and no approval from RBI required in most cases.
A separate legal entity status and all the compliances with Indian law are required.
Can carry all the activities as permitted.
Subsidiaries are generally preferred by manufacturing and IT companies.
Generally foreign companies register a subsidiary company as it can be incorporated without any specific permission from the Government. Also, it is easiest structure to incorporate and can be incorporated within 15 days.
About Rohit Lohade
Rohit Lohade is a Chartered Accountant with 15+ years of experience. He has assisted more than 300 Gobal Companies with India Entry Strategy
