Understanding Exit Options for an Indian Subsidiary

As a founder with an Indian subsidiary, understanding your exit options is crucial for long-term business planning. Whether you're considering winding up operations in India or transitioning to another structure, it's important to be well-versed in the processes and potential challenges involved. While exiting a market like India can be a complex and time-consuming process, there are several avenues available.

In this blog, we'll explore the key exit options for Indian subsidiaries and what you need to consider when planning for an exit.

1. Mergers and Acquisitions (M&A)

One of the most common exit strategies for companies with a subsidiary in India is through merger and acquisition (M&A). M&A allows companies to either merge with or be acquired by another entity, providing a clean exit from the Indian market. However, this process is more complex and requires special approval from the company law tribunals in India.

Merger Process:

• If you opt for a merger, the process typically involves transferring assets, such as company equipment and intellectual property, to the acquiring or merged entity.
• Employees of the subsidiary, such as in a tech company where the primary assets are laptops and human resources, may also be transferred to the new entity.
• After the merger, the original entity can be dissolved.

While mergers and acquisitions provide a relatively straightforward exit route, they do require careful planning and legal oversight to ensure compliance with Indian corporate law.

2. Liquidation or Winding Up

Another exit option is liquidation or winding up the subsidiary. This option involves selling off the assets of the company, settling debts, and distributing any remaining funds to shareholders.

Key Considerations for Liquidation:

• Time Frame: Liquidating or winding up a subsidiary in India is a lengthy process. It typically takes anywhere between 3 to 4.5 years to complete the closure. This time frame starts only after you've cleaned up your books and closed all business transactions.
• Two-Year Waiting Period: After cleaning up the accounts and winding up operations, there’s typically a two-year waiting period before you can file for official closure of the company. During this period, no business activities can take place.
• This process can be particularly cumbersome for companies that don’t have significant tangible assets, such as tech startups, as the liquidation often focuses on clearing out operational elements like equipment and human resources.

3. Dissolution

In some cases, particularly after a merger or acquisition, companies may opt for dissolution as a part of the exit strategy. This typically involves formally closing the company in a way that frees the parent company of any ongoing responsibilities in India.

Like liquidation, dissolution is also a time-consuming process. It is vital to ensure that all business activities are concluded and financial records are cleared before moving forward with dissolution.

4. Considerations Before Exiting

While exiting an Indian subsidiary can be a viable option for some companies, it’s important to consider the following before moving forward:

• Complexities in Legal Processes: Exiting a subsidiary in India, particularly through M&A or liquidation, can involve a lot of paperwork and special approvals from authorities.
• Time Frame: The exit process, especially liquidation, is long and can take years. This makes it vital for companies to plan their exit strategy well in advance.
• Financial Health: Ensure that your books are in order and that the company has settled any outstanding financial obligations before pursuing any exit routes.

Conclusion

Exiting an Indian subsidiary is not a simple decision. Whether you are considering mergers and acquisitions, liquidation, or dissolution, it’s essential to plan carefully and seek professional advice to navigate the regulatory hurdles. Remember, the exit process can take several years, particularly if you are liquidating or closing down the company, so early preparation is key.

For a more detailed understanding of how to manage your subsidiary’s exit strategy, make sure to check out our YouTube video, where we delve deeper into these exit options and the steps involved in each process.