Do you want to shut down your business in India? For years, this was difficult to do, but now the process has been simplified. We will explain the steps you need to take to close a Liaison Office (LO) or a Private Limited (Pvt. Ltd) in India.
Close Liaison Office (LO) in India
In order to complete the closure process of your Indian liaison office quickly, it is wise to prepare the necessary documentation early on. Failure to do so can seriously delay the process. You have to submit various documents to three different authorities for closing your liaison office in India:
Filing documents with the Registrar of Companies (ROC)
You have to submit a financial statement of your Indian Liaison Office, through the online FC-3 form, from the date it was founded to the date of closure.
In addition, submit your Annual Return through the online FC-4 form, again, it must be a statement from the date of incorporation to the date of closure.
Verification of required documentation by Authorised Dealer Bank (AD Bank)/The Reserve Bank of India (RBI)
Your Authorised Dealer Bank must submit your initial liaison office approval, issued by the RBI, or your office renewal approval, issued by AD Bank, to the RBI for verification. If your approval has expired or is about to expire, AD Bank will submit a renewal application to the RBI.
In addition, your AD Bank will verify your Annual Activity Certificate (AAC) and your financial statement verified by the RBI, again this is a statement from incorporation to the last financial year prior to the closing date.
Documentation to be submitted to the Director-General of International Taxation (DGIT) and/or Director-General of Police (DGP)
You need to have the same AAC and financial statement that you submitted to your AD Bank verified by DGIT.
In addition, your annual 49C forms must also be checked by the DGIT.
Finally, you must submit your liaison office's AAC and annual report to the DGP.
Are you looking to close your Branch or Project Office in India? Our guide for CFOs with operations in India provides a comprehensive overview of the steps you need to take to properly close your operations in India. In addition, this guide is full of advice and tips on other challenges that CFOs in India are bound to face, such as transfer pricing and dividend repatriation to Europe.
Closing a Private Limited Company (Pvt Ltd) in India
The malfunctioning of your business in India is one of the reasons that might prompt you to close down your Indian private limited company. We therefore look at two common scenarios: a voluntary dissolution of the Private Limited Company and the closure of a 'dormant' Pvt Ltd.
Voluntary dissolution of the Private Limited
In order to dissolve a private limited company in India, the company must pass a resolution to dissolve the company at its general meeting, or by a special resolution passed with the approval of at least three-quarters of the shareholders. Then, as in Europe, a liquidator must be appointed at the same meeting.
Then take the following steps:
The consent of the creditors is required for the liquidation of the private limited company. Creditors must agree that they have no obligations if the company is liquidated.
The company must draw up a solvency statement which must be accepted by the company's creditors. The private limited must demonstrate the credibility of the company in the solvency statement.
The appointed liquidator carries out the liquidation procedure and draws up a liquidation report on the assets, property, debts, etc. The report must then be submitted to the general meeting of the company for approval and then filed by the liquidator with the ROC together with a copy of the final accounts of the private limited.
The liquidator also submits a request to the court for dissolution of the private limited. In general, the court will issue a dissolution order within 60 days of the request. A copy of this order must be submitted by the liquidator to the ROC.
All the above procedures must be submitted and filed in a form prescribed by law, so it is highly recommended that you seek guidance from local experts during this process to avoid delays caused by unnecessary errors in form.
Dissolution of a dormant private limited company
For so-called dormant private limiteds, the Indian government grants certain exemptions for their dissolution as no financial transactions are carried out. A dormant Pvt Ltd can be wound up with an expedited procedure involving the filing of the STK-2 form. The form has to be filed with the ROC and has to be signed by the Managing Director of the company, who is authorised by the Board of Directors.
For the purposes of this scheme, a dormant private limited is a company that:
Has no assets and no liabilities, and
which has not commenced any business activity since its establishment, or
has not been carrying out business activities during the last year preceding the submission of an application under the Fast Track Exit Scheme.
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