Exit Strategy for US Companies Leaving India

When and Why US Companies Exit India

Not every India market entry succeeds. Strategic pivots, global restructuring, M&A transactions, cost rationalization, or simply a product-market fit failure — all are legitimate reasons for a US company to exit its Indian operations. The decision to leave is a business judgment; the execution is a regulatory marathon.

India's exit process is notoriously slow and compliance-heavy. What takes 30-60 days in the US or Singapore can take 12-36 months in India, depending on the exit route chosen and the complexity of the subsidiary's operations. The wrong exit strategy can trap capital, create unresolved tax liabilities, and leave directors personally exposed to penalties years after the entity is closed.

This guide covers the four primary exit routes available to US companies with Indian operations, with specific focus on timelines, costs, tax implications, and FEMA repatriation procedures for 2025-2026.

Exit Route 1: Voluntary Liquidation Under the IBC

Voluntary liquidation under Section 59 of the Insolvency and Bankruptcy Code (IBC), 2016 is the most structured and predictable exit route for a solvent Indian subsidiary with no outstanding debts or disputes.

Eligibility Criteria

• The company must not have committed any default (no unpaid debts to any creditor)
• The company must be solvent — assets must exceed liabilities
• A declaration of solvency, verified by an affidavit, must be filed with the Registrar of Companies (ROC)

Step-by-Step Process

1. Board resolution: The board of directors passes a resolution to initiate voluntary liquidation, including a declaration that the company has no debts or that it will be able to pay its debts in full from the proceeds of assets sold during liquidation
2. Members' special resolution: A special resolution (75% majority) of shareholders approving the liquidation. Since the US parent typically holds 100% of the Indian subsidiary, this is a formality
3. Creditor approval (if debts exist): If the company has any debts, creditors representing at least two-thirds of the total debt value must approve the liquidation within 7 days of the members' resolution
4. Appoint an Insolvency Professional as liquidator: An IBBI-registered Insolvency Professional (IP) is appointed as the liquidator. The liquidator takes over management of the company
5. File with NCLT: The liquidator files the resolution and other prescribed documents with the National Company Law Tribunal (NCLT) within 7 days
6. Public notice: The liquidator publishes a public notice in a newspaper and on the IBBI website, inviting claims from creditors within 30 days
7. Realize assets and settle claims: The liquidator sells assets, collects receivables, settles all creditor claims, and distributes remaining proceeds to members (the US parent)
8. Final report: The liquidator submits a final report to the NCLT within 90 days (if no claims) or 270 days (if claims exist)
9. Dissolution order: The NCLT passes an order dissolving the company. The company ceases to exist

Timeline

The IBC mandates that the liquidator complete the process within 12 months from the liquidation commencement date. In practice, the timeline depends on asset complexity:

Cost Estimate

Advantages

• Most structured and legally clean exit — provides a definitive dissolution order from the NCLT
• Protects directors from future liability claims (once dissolution order is passed)
• Clear process for settling creditor claims
• Required if the subsidiary has any debts or assets to distribute

Exit Route 2: Strike-Off Under Section 248 of the Companies Act

Strike-off is a simpler and cheaper alternative to voluntary liquidation, suitable for dormant or inactive subsidiaries with minimal assets and no liabilities.

Two Modes of Strike-Off

Company-initiated (Section 248(2)): The company applies to the ROC to strike off its name from the register. This is the preferred route for US companies proactively closing an inactive Indian subsidiary.

ROC-initiated (Section 248(1)): The ROC can suo motu strike off a company that has not carried on business for two consecutive financial years and has not filed annual returns. This is an involuntary removal — the company does not control the process.

Eligibility for Company-Initiated Strike-Off

• The company has not commenced business within one year of incorporation, OR
• The company has not been carrying on business for the two immediately preceding financial years
• All directors or a majority of directors must consent via a special resolution or consent letter
• All liabilities must be settled or provided for
• No pending litigation, regulatory proceedings, or government investigations

Process

1. Pass a special resolution or obtain consent of 75% of members
2. File Form STK-2 with the ROC along with prescribed attachments (indemnity bond, statement of accounts, affidavit)
3. The application is processed by C-PACE (Centre for Processing Accelerated Corporate Exit), established by MCA in April 2023
4. ROC publishes a public notice in Form STK-7, inviting objections within 30 days
5. If no objections, the ROC strikes off the company name from the register
6. The company stands dissolved upon publication of the strike-off notice in the Official Gazette

Timeline and Cost

Critical Warning: Liability Survives Strike-Off

Unlike voluntary liquidation, a strike-off does not extinguish director and officer liability. Under Section 248(7), the liability of every director, manager, and officer continues and may be enforced as if the company had not been dissolved. This means Indian tax authorities can pursue assessments, and creditors can file claims against directors even after the company is struck off. For US companies with significant Indian operations, voluntary liquidation provides much stronger legal closure.

Exit Route 3: Sale of Shares to a Third Party

Instead of winding up the subsidiary, the US parent can sell its shares in the Indian entity to a third party — either an Indian buyer or another foreign company. This is the fastest exit route and allows the US company to recover its investment without going through the liquidation or strike-off process.

Pricing Requirements Under FEMA

The share price must comply with FEMA pricing guidelines:

• Sale to an Indian resident: The price must be at or above Fair Market Value (FMV), determined by a SEBI-registered merchant banker or a Chartered Accountant using an internationally accepted valuation methodology on an arm's length basis
• Sale to another non-resident: The price can be freely determined between the parties (no pricing floor), provided the transaction complies with entry route conditions for the incoming investor's jurisdiction

Tax Implications for the US Seller

FEMA Filings

• The Indian company must file Form FC-TRS with the AD bank within 60 days of the share transfer
• If the buyer is a non-resident, the incoming investor must also comply with FC-GPR filing requirements
• The sale proceeds can be repatriated to the US parent through the AD bank after tax obligations are settled

Advantages

• Fastest exit route — can be completed in 30-90 days
• No liquidation or winding-up process required
• The Indian entity continues operating (employees, contracts, and relationships are preserved)
• The US parent receives sale proceeds rather than residual liquidation value

Risks

• Finding a buyer at an acceptable price may be challenging, especially for loss-making or specialized subsidiaries
• Representations, warranties, and indemnities in the share purchase agreement can create contingent liabilities for years
• Seller may remain liable for pre-closing tax assessments if not properly documented in the SPA

Exit Route 4: Closure of Branch or Liaison Office

If the US company operates through a branch office or liaison office (rather than a subsidiary), the closure process is different and involves RBI approval.

Branch Office Closure

1. Obtain board resolution from the US parent company authorizing closure
2. Settle all liabilities in India (employee dues, vendor payments, tax obligations)
3. Obtain a CA certificate confirming all liabilities are settled and all regulatory filings are current
4. File closure application with the AD bank, which forwards it to the RBI
5. RBI reviews and grants approval for closure and remittance of remaining funds
6. Obtain tax clearance certificate from the Income Tax Department
7. Repatriate remaining funds to the US through the AD bank
8. File deregistration with the ROC

Liaison Office Closure

The process is similar but simpler, as a liaison office cannot earn income in India (it is limited to representational activities). The key steps are:

1. Settle all local obligations (rent, utilities, employee severance)
2. Obtain CA certificate
3. Apply to AD bank/RBI for closure permission
4. RBI grants closure approval (typically 2-4 months)
5. Repatriate remaining funds and file ROC deregistration

Timeline

Branch and liaison office closures typically take 4-8 months, primarily due to RBI processing time and the requirement to obtain tax clearance.

Repatriating Funds After Exit

The ultimate goal of any exit is to bring the money home. Here is how repatriation works under FEMA for each exit route:

Repatriation from Voluntary Liquidation

• The liquidator distributes surplus funds to the US parent (as the sole member) after settling all creditor claims
• The distribution is treated as a capital receipt — taxable as capital gains to the extent it exceeds the US parent's cost of acquisition of the Indian subsidiary shares
• File Form 15CA/15CB before remittance
• Route through the AD bank — no separate RBI approval required for standard repatriation

Repatriation from Share Sale

• Sale proceeds are received by the US parent directly from the buyer (or through the AD bank)
• TDS is deducted by the Indian buyer before payment
• The US parent can apply for a lower withholding certificate under Section 197 if the actual tax liability is lower than the standard withholding rate
• Remaining proceeds are freely repatriable after TDS deduction and Form 15CA/15CB filing

Repatriation from Branch/Liaison Office Closure

• Requires specific RBI approval for remittance of remaining funds
• The AD bank processes the remittance after receiving RBI's closure approval
• Tax clearance certificate from the Income Tax Department may be required
• For amounts exceeding USD 1 million, additional RBI scrutiny may apply

Employee Obligations During Exit

Exiting India does not release the US company from its obligations to Indian employees. These obligations must be settled before the exit can be completed:

Mandatory Payments

• Gratuity: Payable to all employees with 5+ years of continuous service (15 days' salary per completed year, capped at INR 25 lakh). If the company is closing, gratuity is payable regardless of the 5-year threshold per the Payment of Gratuity Act
• Leave encashment: Accumulated but unused leave must be encashed at current salary rates
• Notice period pay: If employees are terminated without notice, payment in lieu of notice (typically 1-3 months) is mandatory
• Provident Fund: All employer and employee PF contributions must be current. Pending contributions attract 12% interest and penalties under the EPF Act
• ESOP settlement: If employees hold vested but unexercised options, the company may need to provide an accelerated exercise window or cash settlement (depending on the ESOP plan terms)

Retrenchment Compensation

Under the Industrial Disputes Act, 1947, workers with one or more year of continuous service are entitled to retrenchment compensation equal to 15 days' average pay for every completed year of service (or part thereof exceeding 6 months). For establishments with 100+ workers, prior government approval is required before retrenchment — a process that can take 3-6 months.

Tax Clearance and Final Filings

Income Tax

• File final corporate tax return for the period up to the date of dissolution/strike-off
• Clear all pending tax demands and assessments
• If the subsidiary has carried-forward losses, these are lost upon dissolution — they cannot be transferred to the US parent
• Apply for cancellation of PAN and TAN after final tax clearance

GST

• File all pending GST returns up to the date of closure
• Apply for cancellation of GST registration within 30 days of cessation of business
• Reverse any input tax credit on closing stock and capital goods
• Pay any GST liability arising from reversal of ITC

MCA Filings

• File pending annual returns (MGT-7) and financial statements (AOC-4) for all outstanding years
• File Form STK-2 (for strike-off) or the liquidation initiation documents (for voluntary liquidation)
• Failure to file pending MCA returns before exit can delay or block the closure process

RBI Filings

• File final FLA Return
• Close all pending FC-GPR, ECB-2, or other FEMA filings
• Ensure no outstanding FEMA contraventions exist — unresolved FEMA violations must be compounded before closure

Choosing the Right Exit Route

For most US companies with active Indian subsidiaries, the decision comes down to two options: voluntary liquidation (if there is no buyer and the company wants clean legal closure) or share sale (if a buyer is available and speed is a priority). Strike-off should only be used for genuinely dormant entities with no assets or liabilities.

For a broader analysis of exit options, see our guide on 4 exit routes for foreign investors in Indian companies and our FAQ on 15 questions about closing a company in India.

Key Takeaways

• Plan for 12-24 months to fully exit an active Indian subsidiary through voluntary liquidation. Strike-off is faster (3-6 months) but provides weaker legal protection for directors and does not extinguish liability
• Share sale is the fastest and most tax-efficient exit route — LTCG at 12.5% for holdings exceeding 24 months, with proceeds freely repatriable after TDS and Form 15CA/15CB filing
• Settle all employee obligations before initiating exit — gratuity, leave encashment, PF, and retrenchment compensation are statutory obligations that cannot be avoided. For 100+ worker establishments, government approval is needed for retrenchment
• File all pending tax and MCA returns before applying for closure — outstanding filings will block both voluntary liquidation and strike-off processes
• C-PACE has accelerated the strike-off process since April 2023 — what previously took 12-18 months can now be completed in 3-6 months for eligible companies
• For expert guidance on structuring your India exit, consult our FEMA-RBI compliance team and our annual compliance service for keeping filings current during the wind-down period