Closure of business in India

Investor have the following options to close or exit their businesses established in India. These include:

Transfer of shares

Here, the investor can transfer their shares to another person or body corporate, resident or non-resident, by complying with various provisions under the Companies Act, 2013, FEMA and others as may be applicable.

For ease of doing business, the government has now allowed the transfer of shares under the automatic route instead of the approval route barring a few sectors. Earlier, the name of the transferee could not be entered in the Register of Members under the Companies Act until the form for transfer of shares (FC-TRS) had been approved by the RBI. Now, the name of the transferee can be recorded in the Register of Members as soon as the transfer is complete instead of waiting until form FC-TRS is approved.

Voluntary Liquidation under IBC Code

Voluntary Liquidation is private process for solvent body corporates where a Liquidator is appointed to wind up the affairs of the company and make an application to the Tribunal for its dissolution. The basic requirement for this process is that either the company has no debts or will be able to pay off its debt from the proceeds of assets to be sold in the voluntary liquidation. These criteria have been put in place to ensure the company is not being liquidated to defraud any creditor.

The government has now reduced various timelines under the voluntary liquidation regulations to fast track the process and to provide greater flexibility to solvent entities that want to exit the business.

Removal of name from the records of the Registrar

The Companies Act, 2013 and the LLP Act, 2008 provide an option to exit the business by removing the name of the company/LLP from the Registrar of Companies subject to conditions mentioned in the respective acts. It is an easy route for companies/LLPs that have not commenced any business operations since incorporation or maintained business operations for a period of one year for LLPs or two preceding financial years for companies.

The merit of this option is that the company/LLP must only file annual returns to the Registrar upto the end of the financial year it ceased to carry on business operations. It need not make annual filings post the closure of business operations.

It is important to note that tax implications need to be evaluated for each of the above mentioned exit options.