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 a 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 assigned additional responsibilities to the ‘Corporate Person’ to preserve the records of the company after its dissolution and ensure that sufficient provision are made to meet the obligations arising on account of pending matters (if any). Simultaneously, the liquidator is also obligated to maintain records pertaining to the liquidation process for a duration of eight years. These measures aim to enhance the accountability of the directors as well as the liquidator by ensuring the accuracy of the processes adopted for the liquidation and facilitating access to records for statutory authorities in the future. Lately, the timelines for conducting and concluding the Voluntary Liquidation process have been tightened, with additional compliance requirements imposed in cases of failure to meet them which further increases the effectiveness of the process.

Remittance of assets/liquidation proceeds to foreign shareholders by Companies under liquidation:

Authorized Dealer (AD) banks allow remittances of surplus funds available with the Indian companies on directions issued by the liquidator in case of liquidation on submission of the following documents:

• Auditor's certificate confirming that all liabilities in India have been either fully paid or adequately provided for
• Auditor's certificate to the effect that the winding up is in accordance with the provisions of the Companies Act, 2013 (this may be inferred as the ‘Insolvency and Bankruptcy Code, 2016’)
• In case of winding up other than by a Tribunal, an auditor's certificate stating that there are no legal proceedings pending in any Tribunal in India against the applicant or the company under liquidation, and there is no legal impediment in permitting the remittance.

Removal of name from the records of the Registrar

The Companies Act, 2013 and the Limited Liability Partnership (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 are non- operational for a period of one year (in the case of LLPs) or two preceding financial years (in the case of companies).

Recently, the Ministry of Corporate Affairs (MCA) established a Centre for Processing Accelerated Corporate Exit (also called C-Pace) that would process the application for removal of name of companies from the records of the Registrar with an aim to facilitate and speed up the dissolution process considerably.

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