These are the steps you need to take to close your business in India

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. 

Sales and distribution workshop in India

Are you not satisfied with the results of your Indian business, but can't put your finger on the problem? Don't be put off by the long haul it takes to grow in India and review your strategy with our experts in our special workshop on sales and distribution in India. 

A workshop usually lasts about 2 hours during which our experts work with you to explore your issue and formulate possible answers and strategies. We have expertise in various fields: from sales and distribution to supply chain and HR. 

Joint venture in India: how to do it

Starting with a partner can be smart in a country like India. Despite the fact that the rapidly growing Indian economy offers opportunities for companies in every sector and industryIndia is also a country where you need to have good connections and really understand the market in order to succeed. As a newcomer to the Indian market, starting a joint venture brings a lot of advantages. You can rely on the market knowledge and extensive network of your Indian partner and you share the risks. But there are also examples of joint ventures in India that failed due to cultural differences and a lack of leadership, such as McDonalds happened to McDonalds.

Memorandum of Understanding

A joint venture almost always involves the creation of a new company owned by two or more partners. A joint venture is often set up for a special project and is usually not intended to be a long-term business connection. The partners contribute their assets (people, machinery, capital and knowledge) for a specific purpose and for a limited time, but remain completely separate companies while the joint venture forms a new company.

Before setting up a new entity as a foreign company with an Indian partner, it is highly recommended that due diligence be performed, just like any other business transaction. In addition, drafting a memorandum of understanding (MOU) is very common in India. Such an MOU ensures that all parties fully understand and agree on the purpose, responsibilities and risks of the joint venture. It is a short document without much legal jargon, which states the roles of both parties and establishes a roadmap for the future on the parties' intentions, management structure and cost allocation.

Articles of Association

Most joint ventures in India are structured in the form of private limited companies, the equivalent of the Dutch BV. It is mandatory for a private limited to have at least two directors and at least one director who is resident in India, that is, someone who has resided in India for a period of at least 182 days in the previous calendar year. So this does not necessarily have to be an Indian. In a private limited, the Articles of Association (AoA) are a very important document. The AoA are a requirement while incorporating a private limited in India and contain regulations for the internal management of the company.

The Companies Act 2013 gives companies the freedom to determine the content of the AoA. For example, the AoA contains a clause on the steps to be taken in the event of conflict or termination of a joint venture in the event of an impasse. It is therefore advisable to devote time and attention when drafting the AoA and not depend on a standard off-the-shelf concept. The Companies Act, 2013 requires every company to have an MOU and AoA. The MOU and AoA are the charter documents of the company. As such, both must be filed with the Registrar of Companies (the Indian Chamber of Commerce) of the province in which the foreign company wishes to establish itself.

Joint Venture Agreement

Once the MOU and the AoA have been drafted, the foundation for the joint venture has been laid and the Joint Venture Agreement (JV Agreement) can be drafted. This is a working document that explicitly focuses on what decisions the partners can and may make about the shares, management structure, withdrawal rights, competition issues, dispute resolution, intellectual property rights and any guarantees. The JV Agreement is not a binding document and is drafted purely to define the cooperation between and responsibilities of the partners. Indian law provides sufficient flexibility for the parties to set out their own arrangements in a final agreement.

The JV Agreement or other agreements related to the joint venture necessarily require skill in drafting the documents without room for ambiguity. Complicated and vague documentation can be fatal to the joint venture and impede the interest of the parties. One of the things that requires expertise is the exit strategy. The JV Agreement establishing a joint venture should also include a planned exit strategy so that all parties are protected once the partnership has reached its goal. 

Most joint ventures are dissolved through a partner buyout. It is advisable to include clear terms for terminating a JV in the agreement. Once the parties have determined the key points for the JV Agreement, it is wise to turn the matter over to a lawyer in India. Taking into account Indian laws and regulations, he or she can convert the key points into the official Joint Venture Agreement document.

Local support in setting up joint venture

So setting up a joint venture offers you, as an international company and newcomer to the Indian market, interesting advantages. No long start-up time in which you have to build a network, find the right distributor and acquire customers. For all this you can rely on your Indian partner. But the responsibility of setting up the joint venture itself does rest on your shoulders, of course. Local knowledge and support is no luxury in that process. Do you want to do all the preparatory work for the joint venture in a sound manner and start off with the right documents in your pocket? We have a team of local experts ready to make your start as smooth as possible.