Indian Business Acquisition can be structured in two main ways: a foreign company can purchase shares in an existing Indian company or acquire its business through an asset purchase or transfer of an undertaking. Both structures can provide access to the Indian market, customers, employees, technology and established operations. However, they have different legal, regulatory, tax and commercial consequences. The right structure depends on the business being acquired, the buyer’s investment eligibility, the liabilities involved and the parties’ commercial objectives. Before proceeding, a foreign buyer should assess India’s foreign direct investment rules, conduct legal and financial due diligence, examine tax implications and plan the transfer of contracts, employees and assets. 1. What Is the Difference Between a Share Purchase and a Business Transfer? In a share purchase, the foreign buyer acquires shares in an existing Indian company. The company continues to own its assets, employ its staff and hold its contracts. The main change is in its ownership and, potentially, its management and control. This structure can be useful where the buyer wants to acquire an established business with existing licences, customer relationships, intellectual property and operational systems. However, the buyer also acquires exposure to the company’s existing liabilities, including potential tax disputes, employment claims and regulatory non compliance. A business transfer involves acquiring specified assets, operations or an undertaking from the seller. Depending on the structure, the buyer may acquire machinery, inventory, intellectual property, contracts, employees and other business assets without purchasing the shares of the company owning them. A transfer may be structured as an itemised asset sale or as a transfer of an undertaking for a lump sum consideration. The legal and tax treatment depends on the transaction documents and the substance of the arrangement. Neither structure is automatically better. A share purchase may preserve business continuity, while an asset acquisition may allow the buyer to select the assets and operations it wishes to acquire. The buyer must still assess which liabilities, contracts and regulatory obligations will follow the transaction. 2. Check Whether Foreign Investment Is Permitted in the Sector Before negotiating an acquisition, the buyer should identify the Indian company’s business activities and determine the applicable foreign direct investment (FDI) conditions. India permits foreign investment through the automatic route in eligible sectors, while other sectors require prior Government approval. Some activities are subject to sectoral caps, operating conditions or restrictions. Certain activities are prohibited for foreign investment. The buyer should examine the relevant sectoral policy, the proposed ownership percentage and whether the acquisition would result in a change of control. A transaction involving a regulated business may require approval or notification to the relevant regulator, even where foreign investment is generally permitted. The parties must also examine beneficial ownership. Restrictions concerning investors from countries sharing a land border with India can affect the acquisition, including certain changes in the beneficial ownership of an existing Indian investment. The applicable rules and any current exceptions should be checked against the buyer’s ownership structure. The National Single Window System provides access to information about Government approvals and investment related processes. The buyer should use the relevant official guidance to identify approval requirements before committing to completion. 3. Conduct Legal Due Diligence Before Agreeing the Purchase Legal due diligence helps the buyer understand what it is acquiring and identify risks that could affect the purchase price or transaction structure. For a share purchase, the review should cover the company’s incorporation records, shareholding, constitutional documents, shareholder agreements, board approvals and existing charges over assets. The buyer should also examine material contracts, litigation, tax disputes, regulatory filings, intellectual property rights and compliance with applicable laws. For a business transfer, due diligence should focus on the assets and operations being transferred. The buyer should verify ownership of the assets, identify any mortgages or security interests, check whether key contracts can be assigned and establish whether licences can be transferred or must be obtained afresh. Employment matters also require attention. The parties should assess employee entitlements, accrued benefits, pending disputes and the process for transferring or offering employment to staff. The treatment of employees can differ according to the transfer structure and applicable employment laws. The findings should inform the acquisition agreement. Material risks may justify specific warranties, indemnities, price adjustments, conditions precedent or an escrow arrangement. A buyer should not rely solely on the seller’s assurances without checking the underlying records. 4. Review Pricing, Valuation and Payment Requirements A foreign company acquiring shares in an Indian company must consider the pricing rules applicable under India’s foreign investment framework. The relevant requirements depend on the type of securities, whether the company is listed or unlisted, the residence status of the parties and the transaction structure. A valuation report may be required to support compliance with applicable pricing guidelines. The buyer should also confirm the permitted payment route and ensure the transaction consideration is properly documented. Where consideration includes deferred payments, indemnity holdbacks, escrow arrangements or non cash elements, the parties should examine whether the proposed terms comply with applicable foreign exchange rules. An asset or undertaking transfer requires a separate analysis. The parties should identify the assets being sold, the allocation of consideration and any applicable stamp duty or registration requirements. The tax treatment may depend on whether individual assets are transferred separately or an undertaking is transferred as a going concern under a qualifying structure. Valuation is not merely a negotiation tool. It can affect regulatory compliance, tax calculations and the evidence required by banks or authorities. 5. Assess the Tax Consequences of Each Structure Tax can materially affect the overall cost of an Indian business acquisition. The buyer and seller should model the likely tax consequences before deciding between a share purchase and a business transfer. In a share purchase, the seller may incur tax on gains arising from the transfer of shares. The treatment depends on factors such as the nature of the shares, holding period, seller’s status, applicable exemptions and the tax law relevant to the transaction. The buyer should also consider withholding obligations where applicable. In a business transfer, the tax outcome depends on the assets transferred and the legal structure used. A transfer of an undertaking for a lump sum may qualify for special treatment if it satisfies the statutory definition of a slump sale. An itemised asset sale may produce different results for different asset categories. India’s Income Tax Act, 2025 came into effect on 1 April 2026. Transactions and tax periods must be analysed under the legislation applicable to the relevant period, including any transitional provisions. The Income Tax Department provides official tax legislation and guidance. The parties should also consider indirect taxes, stamp duty, tax losses, carried forward credits and the availability of tax depreciation. The correct analysis depends on the precise transaction and should be completed before the purchase price is finalised. 6. Examine Contracts, Licences and Intellectual Property An acquisition may be commercially attractive because of its existing contracts, licences, technology or customer relationships. However, these rights do not always transfer automatically. In a share purchase, the company generally remains the same contracting entity. Even so, contracts may contain change of control clauses requiring consent or allowing termination when ownership changes. Regulatory licences may also impose conditions concerning ownership or management. In a business transfer, the buyer must identify which contracts, permits and intellectual property rights can be assigned. Some contracts require the counterparty’s consent, while certain licences may be personal to the existing business and cannot simply be transferred. Intellectual property due diligence should confirm ownership of trademarks, patents, software, designs, domain names and other material rights. The buyer should also examine employee and contractor agreements to confirm the business has the necessary rights to use and commercialise its technology. The acquisition agreement should clearly identify which rights are included, which consents are required and who is responsible for obtaining them. 7. Prepare the Acquisition Agreement and Completion Conditions The acquisition agreement should reflect the chosen structure and allocate the principal commercial and legal risks. A share purchase agreement normally sets out the shares being sold, consideration, completion mechanics, warranties, indemnities and conditions precedent. It may also contain provisions concerning interim business conduct, restrictions on competing activities and post completion cooperation. A business transfer agreement should identify the assets and liabilities included in the transaction, the consideration, the treatment of employees, contract assignments and the transfer of relevant records. The agreement should clearly distinguish assumed liabilities from those retained by the seller, subject to applicable law. Conditions precedent may include regulatory approvals, third party consents, lender releases, satisfactory due diligence and corporate authorisations. The parties should agree what happens if a required approval is delayed or refused. Where the acquisition involves an Indian company, the relevant corporate approvals and share transfer formalities must also be completed. Depending on the structure, additional filings, registrations or notifications may be required after completion. 8. Plan the Post Acquisition Integration Legal completion is only one part of a successful acquisition. The buyer should prepare a plan for management transition, financial controls, employee communication, contract continuity and regulatory compliance. For a share purchase, the buyer may need to appoint directors, update governance arrangements and implement new reporting systems. The company’s existing obligations remain in place, so outstanding filings and compliance issues should be addressed promptly. For a business transfer, the buyer should confirm the assets have been delivered, relevant contracts have taken effect and any required registrations or licences are in place. The parties should also ensure employees, customers and suppliers understand the operational changes. Sound business investment planning helps the buyer coordinate legal, financial and operational workstreams, rather than treating the acquisition as a single signing event. A foreign company entering India for the first time should also consider whether it needs an Indian subsidiary, branch or another permitted business presence. The appropriate structure depends on its intended activities and the rules governing foreign entities in India. The decision to register a company is separate from the decision to acquire an existing Indian business, although both may form part of a broader market entry strategy.   Conclusion A foreign company can acquire an Indian business through a share purchase or a business transfer, but the choice requires careful legal, regulatory, tax and commercial analysis. The buyer should confirm foreign investment eligibility, conduct due diligence, assess valuation and tax consequences, obtain necessary approvals and document the transaction properly. Early planning helps identify risks before they affect the price or completion timetable. A structure designed around the buyer’s commercial objectives and India’s regulatory requirements provides a stronger foundation for a successful acquisition Frequently Asked Questions Can a foreign company directly acquire an Indian business? Yes, subject to the applicable FDI rules, sectoral conditions, approvals and other legal requirements. The appropriate acquisition structure depends on the business and the buyer’s eligibility. Is a share purchase better than a business transfer? Neither is universally better. A share purchase preserves the existing company but exposes the buyer to its liabilities. A business transfer can allow the buyer to select assets and operations, but transferring contracts, licences and employees may require additional steps. Does every foreign acquisition require Government approval? No. Many investments fall under the automatic route. Approval may be required for specified sectors, investors or ownership structures. The applicable rules should be checked before completion. What due diligence is required before acquiring an Indian company? The review commonly covers corporate records, ownership, contracts, tax, litigation, licences, employees, intellectual property, assets, liabilities and regulatory compliance. The scope should reflect the transaction’s size, sector and risk profile. What taxes apply to an Indian business acquisition? The tax outcome depends on whether the transaction involves shares, individual assets or an undertaking, as well as the parties’ circumstances and applicable tax law. Tax advice should be obtained before agreeing the final structure and consideration. Can the buyer choose which liabilities to acquire? In an asset or business transfer, the parties can define the liabilities assumed under the agreement, subject to applicable law. In a share purchase, the company retains its liabilities because the company itself remains the same legal entity.

Investment Proceeds Repatriation refers to transferring money earned from an Indian investment, such as the sale of shares, outside India. For foreign investors, the process involves more than instructing a bank to send funds overseas. The investor must establish eligibility for repatriation, comply with applicable foreign exchange regulations, settle Indian tax liabilities and provide the required supporting documents. India’s Foreign Exchange Management Act, 1999 (FEMA), the Foreign Exchange Management (Non Debt Instruments) Rules, 2019, and relevant Reserve Bank of India (RBI) directions form an important part of the legal framework. The precise requirements depend on the asset sold, the investor’s residential status, the original investment route and whether the investment was made on a repatriation basis. Completing these checks before requesting a transfer can help avoid banking delays, regulatory complications and unexpected tax costs. 1. Confirm Whether the Investment Is Eligible for Repatriation The first step is to establish whether the investment was made on a repatriation basis. This determines whether the sale proceeds may be transferred abroad under the applicable foreign exchange rules. Foreign investors holding eligible Indian securities on a repatriation basis can generally remit the net sale proceeds overseas, subject to applicable conditions. These may include compliance with pricing requirements, payment of taxes and the submission of supporting documents to an authorised dealer bank. The position may differ for investments made by Non Resident Indians (NRIs) or Overseas Citizens of India (OCIs) on a non repatriation basis. In such cases, the proceeds may need to be credited to an eligible Indian bank account, and any subsequent remittance must follow the rules applicable to the account and the source of funds. Investors should therefore review the original investment records, inward remittance evidence, bank statements and relevant declarations before initiating repatriation. The fact an investor is currently resident outside India does not, by itself, establish an unrestricted right to transfer every Indian asset’s sale proceeds abroad. 2. Check FEMA Compliance and the Applicable Investment Rules FEMA regulates cross border payments and the movement of foreign exchange. The applicable requirements depend on the nature of the investment and the transaction through which the proceeds arose. For example, the sale of shares in an Indian company may be governed by the foreign investment consultants , including the Non Debt Instruments Rules and the RBI’s directions. A sale of immovable property, a withdrawal from an Indian bank account or the winding up of an Indian business may involve a different set of provisions. Before repatriation, the investor should confirm whether the original investment complied with the rules in force at the relevant time. Relevant checks may include the permitted investment route, sectoral limits, required approvals, pricing conditions and applicable reporting. Historical non compliance should not be ignored. If an earlier filing was missed or the investment was not structured correctly, the investor may need to address the issue before the authorised dealer bank is satisfied with the proposed remittance. The RBI Master Direction on Foreign Investment in India provides an important starting point for eligible foreign investments in Indian companies. Investors should verify the latest version and any subsequent amendments before acting. 3. Verify the Sale Price and Valuation Requirements Pricing compliance is another important consideration, particularly where the investment involves shares in an Indian company. FEMA pricing rules may apply to transfers of equity instruments involving residents and non residents. The relevant requirements depend on the investor categories, the type of instrument and the transaction structure. For unlisted shares, the parties may need appropriate valuation evidence to demonstrate compliance with the applicable rules. The sale agreement should clearly record the number and class of securities transferred, the consideration, the payment terms and the completion date. Supporting valuation documents should be retained where required. Investors should not assume every sale price is acceptable simply because the buyer and seller have agreed to it. Nor should they assume the same valuation method applies to listed securities, unlisted shares and other investment assets. If the transaction falls outside the applicable pricing framework, further regulatory analysis may be necessary. Confirming the permitted price before completion can reduce the risk of delays when the seller later seeks to remit the proceeds. 4. Calculate and Settle Indian Tax Liabilities Sale proceeds should not be treated as fully available for overseas transfer until the applicable Indian tax position has been assessed. The tax treatment depends on the asset, the acquisition and sale dates, the purchase cost, the nature of the gain, the seller’s status and any applicable tax treaty. Capital gains tax may arise when shares or other capital assets are sold. Other rules may apply to business assets, distributions or proceeds received during liquidation. The investor should obtain a transaction specific tax calculation and determine whether tax has been paid, withheld or otherwise accounted for. Where withholding tax applies, the parties should verify the amount and retain the relevant evidence. The buyer, Indian company or another responsible party may have obligations depending on the transaction. Investors should also consider whether treaty relief is available and whether the documentation required to claim it has been provided. A treaty should not be assumed to eliminate Indian tax automatically. The authorised dealer bank may request tax payment evidence, a chartered accountant’s certificate, a tax undertaking or other documents appropriate to the remittance. The exact requirements can vary with the transaction and the bank’s compliance review. 5. Prepare the Documents Required by the Authorised Dealer Bank Most repatriation requests are processed through an authorised dealer bank. The bank reviews the purpose of the remittance, the source of funds and the supporting records before allowing the transfer under the applicable rules. Depending on the investment, the documentation may include the original investment or subscription records, proof of inward remittance, the sale agreement, valuation reports, bank statements, tax documents and evidence of any required regulatory approvals. Where the proceeds arise from shares in an Indian company, the bank may also seek corporate records, details of the original acquisition, evidence of the share transfer and confirmation of relevant reporting. The documents required for a listed investment may differ from those needed for a private company transaction. The investor should ask the bank for a transaction specific document list before submitting the remittance request. This is particularly useful where the investment was made several years earlier, records are held across multiple institutions or the seller has changed residential status. Clear and consistent records can help the bank trace the investment from the original funding through to the sale and proposed remittance. 6. Confirm Reporting and Transfer Formalities Regulatory reporting is separate from the commercial completion of a transaction. Depending on the nature of the investment, the parties may have needed to file prescribed forms or meet other reporting requirements when the investment was made or transferred. For foreign investment in Indian companies, reporting obligations can include filings associated with the issue or transfer of equity instruments. The applicable form and responsible party depend on the transaction. Not every sale requires the same filing, and an investor should not assume a particular form applies to all transfers. Where a filing was required, the parties should confirm whether it was submitted correctly and retain the acknowledgement. If an error or delay is identified, they should assess the appropriate correction or regularisation process before proceeding. The RBI regulations on payment and reporting of non debt instruments set out relevant requirements for specified foreign investment transactions. The current rules should be checked against the facts of the proposed remittance. 7. Check the Correct Bank Account and Permitted Remittance Route Even where repatriation is legally permitted, the proceeds must be routed through an appropriate banking channel. The correct route may depend on whether the seller is a foreign company, an individual non resident, an NRI or an OCI, and whether the investment was held on a repatriation or non repatriation basis. Relevant account rules may determine whether proceeds can be remitted directly overseas or must first be credited to an eligible Indian account. Investors should confirm the beneficiary account details, currency, permitted payment method and any conversion or banking charges. They should also ensure the amount requested matches the net proceeds available after applicable deductions. Where the proceeds are held in an NRO account or arise from an asset subject to separate remittance limits, the investor should verify the applicable remittance facility rather than relying on the rules for foreign investment in shares. For investors planning future NRI investment opportunities, it is sensible to consider repatriation conditions when selecting the investment route. The ability to transfer money out of India may depend partly on how the investment was funded and documented at the beginning. 8. Identify Issues That Could Delay Repatriation A remittance may be delayed where the bank cannot reconcile the original investment with the sale proceeds, tax evidence is incomplete or the investor’s regulatory status is unclear. Inconsistent names, missing transaction records, valuation concerns and outstanding reporting requirements can also create difficulties. Another common issue is assuming the sale agreement alone proves the proceeds can be remitted. The agreement records the commercial arrangement, but it does not replace FEMA compliance, tax obligations or the bank’s documentation requirements. Where an Indian business is being sold or wound up, the investor should also establish whether the proceeds represent share sale consideration, a dividend, a liquidation distribution, a loan repayment or another category of payment. Each may have different legal and tax consequences. Investors dealing with a new Indian venture should distinguish between company formation online and the later process of transferring investment proceeds overseas. Incorporation is only one stage of a company’s life cycle. Proper investment records, regulatory filings and tax documentation remain important when funds are eventually repatriated.   Conclusion Investment proceeds repatriation from India requires a coordinated review of foreign exchange compliance, tax liabilities, pricing rules, reporting and banking documentation. The investor should first confirm the basis on which the investment was held, then establish the legal route for remitting the net proceeds and assemble the evidence required by the authorised dealer bank. A transaction specific review before the remittance request can help identify problems early and reduce avoidable delays. As the applicable rules depend on the asset and investor category, the final checklist should be confirmed against the latest regulations and the facts of the investment. Frequently Asked Questions Can a foreign investor freely transfer sale proceeds from India overseas? Not in every case. Repatriation is generally possible where the investment and proposed remittance satisfy the applicable FEMA rules, tax requirements and supporting documentation conditions. Is RBI approval required for every investment proceeds repatriation? No. Many eligible transactions can be processed by an authorised dealer bank under general permissions. Specific approval may be needed where the transaction falls outside the permitted framework or a particular rule requires it. Must Indian tax be paid before sale proceeds are remitted? Applicable Indian taxes must be properly accounted for. Depending on the transaction, this may involve payment of tax, withholding, certificates or other supporting evidence. Can proceeds from shares held on a non repatriation basis be transferred abroad? The treatment depends on the investor category, the original investment conditions and the relevant account and remittance rules. The proceeds should not be assumed to be freely repatriable merely because the seller is now outside India. What documents will a bank request before allowing repatriation? The bank may request proof of the original investment, sale documents, bank statements, tax evidence, valuation records, relevant regulatory filings and any required approvals. The precise list depends on the transaction. What happens if earlier FEMA reporting was missed? The issue should be identified and assessed before the remittance request proceeds. The appropriate corrective or regularisation steps depend on the nature of the omission and the applicable rules.

Shareholder Exit Rights are an important consideration for foreign investors entering an Indian company. A carefully drafted shareholders’ agreement can establish when an investor may sell its shares, how an exit price is determined and what happens if the founders or other shareholders cannot agree on a sale. Put options, call options, drag along rights and tag along rights can help allocate these risks before a dispute arises. However, an exit clause is not effective merely because the parties have signed it. Foreign investors must consider the Foreign Exchange Management Act, 1999 (FEMA), applicable pricing rules, company law and the company’s constitutional documents. The objective is to create commercially workable exit mechanisms while ensuring the proposed transfer can be implemented lawfully. Why Do Foreign Investors Need Contractual Exit Rights? Foreign investors may commit capital for several years without having a readily available market in which to sell their shares. This is particularly relevant when investing in an unlisted Indian private company. The investor may depend on a future acquisition, a sale to another investor, a promoter purchase or a public listing to realise its investment. Exit rights help the parties agree in advance on possible routes out of the investment. They can also clarify what happens if the business underperforms, the founders breach agreed obligations, a planned sale does not occur or the shareholders reach a deadlock. A strong exit framework should address both the investor’s commercial objectives and the company’s practical ability to honour the arrangement. An agreement promising an exit at a fixed return may create regulatory concerns even if the parties consider it commercially reasonable. The terms must therefore be reviewed alongside the rules governing foreign investment and share transfers. 1. Understand How a Put Option Works A put option gives an investor the contractual right to require another party to purchase its shares when specified conditions are met. For example, a foreign investor may negotiate a put option exercisable if the company fails to meet an agreed milestone, a defined period expires or a material contractual breach remains unresolved. The clause should identify the party required to buy the shares, the triggering event, the exercise period and the process for serving an exercise notice. It should also explain how the number of shares to be transferred and the price will be determined. The identity of the proposed purchaser matters. A put option against the Indian company itself raises different company law considerations from an option requiring the founders or another shareholder to buy the investor’s shares. A company purchase must comply with the applicable rules on buybacks, capital reduction or other permitted mechanisms. A founder purchase must be assessed against the founder’s contractual obligations and ability to complete the transaction. For a non resident investor, the exit price must also comply with the applicable FEMA pricing framework. A contractual right to sell does not automatically permit the investor to receive a guaranteed return. The clause should be drafted with regulatory conditions in mind, rather than relying on a fixed price or internal rate of return without further analysis. 2. Structure Call Options Carefully A call option gives the holder the right to require another party to sell shares on agreed terms. In an Indian joint venture, for example, a foreign investor may seek a call option over a local partner’s shares if the partner commits a serious breach or a deadlock prevents the business from operating effectively. The agreement should define the circumstances in which the call option becomes exercisable. Triggers may include a material breach, an agreed deadlock process, a change of control or another clearly defined event. Vague triggers can create uncertainty and increase the risk of litigation. The clause should also specify the notice process, completion timetable, payment arrangements and transfer documents. Where the option concerns shares held by a non resident or involves a transfer between a resident and a non resident, the parties must examine the applicable pricing and transfer requirements. Call options should not be treated as a substitute for a proper governance framework. Reserved matters, board representation, information rights and deadlock resolution procedures can help prevent disagreements from escalating to an exit. The option should function as part of the wider contractual structure. 3. Address FEMA Pricing and the Risk of an Assured Return FEMA compliance is central to exit planning for foreign investors. The relevant framework includes the Foreign Exchange Management (Non Debt Instruments) Rules, 2019, and the applicable Reserve Bank of India directions. The precise requirements depend on the transaction, the parties’ residency status, the type of security and the route through which the investment was made. Indian foreign investment rules permit optionality clauses in relevant circumstances, subject to applicable conditions. However, an investor’s exit cannot simply be structured to guarantee a predetermined return regardless of the value of the shares or the rules applying at the time of transfer. For an unlisted company, the pricing framework generally requires the relevant transfer to meet the applicable fair value and pricing conditions. The precise methodology, certification and permitted price depend on the transaction and the current rules. Listed securities may be subject to a different pricing framework. Consider a foreign investor seeking an option to sell its shares to a resident founder after five years. The agreement should not assume the founder can automatically purchase the shares at the original investment amount plus a fixed annual return. Instead, the clause should provide for a legally compliant pricing mechanism and completion process, with appropriate qualifications for regulatory requirements. The parties should obtain transaction specific advice before agreeing to an exit formula. A provision that appears commercially attractive may prove difficult to implement if it conflicts with mandatory foreign exchange rules. 4. Use Tag Along Rights to Protect Minority Investors A tag along right allows a minority shareholder to participate in a sale by another shareholder, usually when a founder or controlling investor proposes to sell shares to a third party. It helps prevent the minority investor from being left in a company under new ownership without an opportunity to exit on the agreed terms. The clause should specify the transactions which trigger the right, the minimum percentage of shares being sold and the notice the selling shareholder must provide. It should also explain whether the minority investor may sell all its shares or only a proportionate amount. The agreement should set out how the proposed purchaser will be notified and how the sale will proceed if the purchaser is unwilling to acquire the tagged shares. The parties should also consider what happens if the buyer changes the proposed terms before completion. For foreign investors, tag along rights must operate consistently with the applicable transfer restrictions, pricing rules and required documentation. Clear drafting can reduce uncertainty when a control sale takes place. 5. Consider Drag Along Rights for a Complete Company Sale Drag along rights allow specified shareholders to require other shareholders to participate in a sale, subject to the conditions in the agreement. They can help a buyer acquire the entire company rather than negotiate separately with numerous minority shareholders. A foreign investor may seek a drag along right to facilitate an eventual sale of the business. Founders and minority investors, however, may want safeguards against being forced to sell at an unfair price or on materially different terms. The agreement should define the minimum approval threshold, the type of transaction covered and the protections available to shareholders being dragged into the sale. These may include equal treatment on price per share for the same class, limits on representations and warranties, and a requirement for the buyer to provide the agreed consideration. The parties should also distinguish between the contractual right to require participation in a sale and the legal steps needed to transfer the shares. Corporate approvals, transfer documentation, applicable pricing rules and regulatory reporting may still be required. 6. Define Deadlock, Default and Long Stop Exit Mechanisms Not every exit should depend on a planned sale. A joint venture may become unworkable when the shareholders cannot agree on a budget, business plan or major strategic decision. The agreement should establish a clear deadlock process before either party seeks to force an exit. A typical process may require escalation to senior representatives, followed by a defined negotiation period and, where appropriate, mediation. If the deadlock continues, the parties may use a contractual sale process, call option, put option or another mechanism, provided the structure is legally permissible. Default provisions should distinguish between serious breaches and minor failures. The agreement may provide for notice and a cure period before an exit right becomes exercisable. This reduces the risk of a disproportionate response to a remediable breach. A long stop date can also be useful when an exit depends on an event such as a public listing or acquisition. The agreement should specify what happens if the event has not occurred by the agreed date. The outcome should not be left to informal negotiations after the parties have already invested substantial time and capital. 7. Align the Shareholders’ Agreement with Company Documents An exit right may be difficult to implement if the shareholders’ agreement conflicts with the company’s articles of association or other governing documents. The parties should review transfer restrictions, pre emption rights, consent requirements and provisions governing the registration of share transfers. Under the Companies Act, 2013, the treatment of transfers differs in certain respects between private and public companies. The contractual rights of shareholders and the company’s obligations must be assessed in the context of the relevant provisions and constitutional documents. The agreement should also address the cooperation required from the company and its shareholders when an exit is exercised. This may include signing transfer instruments, providing corporate approvals, updating statutory records and completing applicable filings. During startup investment planning, founders and investors should agree on exit principles alongside valuation, governance and funding terms. Integrating the provisions early is generally easier than reconciling inconsistent documents during a future sale. 8. Draft for Enforceability and Practical Completion An exit clause should be precise enough to operate when the parties disagree. It should identify the relevant parties, triggering conditions, exercise period, pricing mechanism, payment process and consequences of non cooperation. It should also explain how disputes about valuation or the satisfaction of a trigger will be resolved. The parties should consider whether the agreement needs an independent valuation process, expert determination, arbitration or another dispute resolution mechanism. These provisions should complement, rather than contradict, the main exit clauses. Foreign investors should also review the practical consequences of a transfer, including tax treatment, remittance requirements, applicable approvals and reporting obligations. Where an option involves a cross border transfer, the company should coordinate the contractual process with its authorised dealer bank and advisers as appropriate. A foreign investor intending to register a company name or establish a new Indian entity should consider exit rights as part of the wider investment structure, particularly where local partners or future co investors will hold shares. The right structure at the outset can reduce uncertainty when ownership changes later.   Conclusion Put options, call options, tag along rights and drag along rights can give foreign investors and Indian founders greater certainty about how an investment may end. Their effectiveness depends on clear triggers, workable pricing provisions, aligned corporate documents and compliance with FEMA and company law. The best exit structure is one which balances commercial protection with legal enforceability. Investors and companies should review the proposed rights before signing, test how they would work in realistic scenarios and obtain advice tailored to the transaction and the rules in force at the time of exercise Frequently Asked Questions Are put options permitted in Indian shareholders’ agreements? Put options may be included in shareholders’ agreements, subject to the applicable legal and regulatory framework. Where a non resident investor is involved, the option’s exercise and pricing must comply with the relevant FEMA requirements. The specific arrangement should be reviewed before signing. Can a foreign investor receive a guaranteed return through a put option? A foreign investor should not assume a contractual promise of a fixed return will be permissible. The exit must comply with applicable pricing and foreign exchange rules. The clause should provide a legally compliant method of determining the exit price. What is the difference between a put option and a call option? A put option allows its holder to require another party to purchase specified shares. A call option allows its holder to require another party to sell specified shares. Both depend on the contractual terms and applicable law. Are tag along and drag along rights enforceable in India? These rights can form part of enforceable contractual arrangements, subject to the agreement, applicable company law and other legal requirements. Their practical implementation depends on clear drafting, appropriate corporate documents and compliance with relevant transfer rules. Should exit rights be included in the articles of association? The shareholders’ agreement and articles of association should be reviewed together. Depending on the structure, relevant provisions may need to be reflected in the articles to support corporate implementation. The appropriate drafting depends on the company and transaction.

FDI Transaction Disputes can arise when a foreign investor and an Indian company disagree on valuation, ownership, management rights, investment conditions or exit arrangements. These disagreements can delay a funding round, prevent the issue or transfer of shares, or lead to contractual proceedings. The consequences depend on the stage of the transaction, the agreements signed by the parties and the applicable Indian legal and regulatory framework. A disagreement does not automatically invalidate a proposed investment. However, neither party should assume the transaction can proceed on the original terms when a material issue remains unresolved. The parties must establish their contractual rights, assess whether any binding obligations already exist and determine how to resolve the dispute without breaching applicable foreign exchange regulations. Why Do FDI Transaction Disputes Arise? Foreign direct investment transactions often involve several interdependent agreements. These may include a term sheet, share subscription agreement, shareholders’ agreement, share purchase agreement and amended constitutional documents. Each document may address a different aspect of the investment, from the price of the shares to board representation, reserved matters and future exit rights. Disputes frequently arise when the parties interpret a provision differently or when commercial expectations change during negotiations. A foreign investor may seek additional control rights after due diligence reveals new risks. The Indian founders may resist changes which dilute their ownership or restrict their ability to operate the business. Differences may also emerge over financial projections, representations and warranties, indemnities or the timing of funding. The first step is to identify the precise issue. A disagreement about a non binding term sheet is legally different from a breach of a signed agreement. The distinction determines whether either party can demand performance, claim damages or terminate the proposed investment. 1. Determine Whether the Investment Terms Are Binding Before taking action, both parties should review the documents governing the proposed transaction. A term sheet may record the commercial understanding while leaving most provisions subject to definitive agreements. However, some clauses, such as confidentiality, exclusivity, costs and governing law, may be intended to bind the parties immediately. The legal effect of a document depends on its wording, the parties’ conduct and the surrounding circumstances. A document labelled “non binding” should not be assessed solely by its title, nor should every term sheet be treated as a completed investment contract. If a binding agreement has been signed, examine its conditions precedent, closing obligations, termination rights and remedies for breach. These provisions may specify which approvals, documents or regulatory steps must be completed before the investment closes. Where the parties have not reached a binding agreement on the essential terms, either side may have greater freedom to discontinue negotiations, subject to existing obligations and applicable law. A party should obtain legal advice before withdrawing if the other side alleges a breach of exclusivity, confidentiality or another binding commitment. 2. Understand the Consequences of a Delayed or Abandoned Investment A dispute can affect the transaction differently depending on whether it arises before signing, after signing but before closing, or after funds and shares have changed hands. Before signing, the principal consequence may be prolonged negotiations or the loss of the proposed investment. The company may need to reconsider its funding plans, while the investor may reassess the commercial opportunity. After signing, a disagreement over a closing condition can prevent completion. For example, an investor may refuse to release funds because an approval remains outstanding or a contractual warranty appears inaccurate. The company may argue the condition has been satisfied or waived. The agreement determines the available options and whether a refusal to close could amount to a breach. If money has already been transferred or shares have been issued, the analysis becomes more complex. The parties must establish the legal status of the payment, the securities issued and any obligations arising from the transaction. They should not assume the funds can simply be returned or the shares cancelled by mutual agreement without considering applicable corporate and foreign exchange rules. 3. Review FEMA Compliance Before Changing the Deal Foreign investment into an Indian company is governed by the Foreign Exchange Management Act, 1999, the Foreign Exchange Management (Non Debt Instruments) Rules, 2019 and relevant Reserve Bank of India directions. The applicable framework may restrict the sectors in which investment is permitted, prescribe entry routes and impose conditions relating to pricing, payment and reporting. A commercial settlement cannot override mandatory regulatory requirements. If the parties agree to change the investment amount, security type, share price or ownership structure, they should assess whether the revised terms remain compliant with the applicable rules. For example, a negotiated reduction in share price may require fresh analysis under the relevant pricing guidelines. A proposed transfer of shares may also be subject to different pricing conditions depending on whether the buyer or seller is resident in India. The parties should consider sectoral caps, approval requirements and reporting obligations where relevant. The Reserve Bank of India’s Master Direction on Foreign Investment in India is an important reference for assessing these issues. The current version and applicable amendments should be checked before implementing any revised arrangement. 4. Negotiate a Commercial Solution Before Escalating the Dispute Where possible, the parties should begin by identifying which terms are genuinely essential and which can be adjusted. A disagreement about valuation, for example, may be addressed through an independent valuation process, revised funding tranches or a different allocation of economic rights, provided the resulting structure complies with applicable law. If the dispute concerns management control, the parties may revisit board composition, reserved matters, information rights or approval thresholds. If the concern relates to business performance, they may consider milestone based funding or clearly defined conditions for subsequent investment. Any revised arrangement should be documented carefully. Informal emails or verbal assurances may not adequately resolve conflicts between existing agreements. Amendments should be executed in accordance with the contract and any relevant corporate approval requirements. Businesses exploring business investment opportunities should also recognise the importance of allocating sufficient time for legal review and negotiation. Early identification of unresolved issues can prevent a commercial disagreement from disrupting the entire funding process. 5. Use the Contractual Dispute Resolution Mechanism If negotiations fail, the parties should examine the dispute resolution provisions in their agreements. These may require good faith discussions, escalation to senior representatives, mediation or arbitration before court proceedings can begin. An arbitration clause may specify the seat of arbitration, the governing law, the number of arbitrators and the procedure for appointing them. These details matter in cross border transactions because they influence the procedural framework and the courts with supervisory jurisdiction. International investment agreements often involve parties based in different jurisdictions. The parties should therefore distinguish the law governing the contract from the law governing the arbitration agreement and the procedural law associated with the arbitration. The Arbitration and Conciliation Act, 1996 provides India’s principal statutory framework for arbitration and related matters. Whether arbitration is available, and which claims can be referred to it, depends on the agreement and applicable law. Arbitration may offer confidentiality and a structured route to a binding decision, but it can also be expensive and time consuming. Before commencing proceedings, each party should assess the strength of its claim, the likely costs, the location of relevant assets and the practical enforceability of any award. 6. Consider Court Proceedings and Interim Relief Where Appropriate Court proceedings may be necessary when a party seeks urgent protection, challenges the availability or validity of arbitration, or pursues a remedy which cannot appropriately be obtained through the agreed contractual process. Depending on the facts, a party may seek interim relief to protect assets, preserve evidence or prevent conduct which could frustrate the eventual resolution of the dispute. The availability of relief depends on the relevant statutory provisions, contractual terms and evidence. Shareholder disagreements may raise additional questions under the Companies Act, 2013. In appropriate cases, allegations of oppression, mismanagement or prejudicial conduct may engage the jurisdiction of the National Company Law Tribunal. However, a commercial disagreement does not automatically establish grounds for such proceedings. The statutory requirements and available remedies must be assessed separately. The correct forum is particularly important where the dispute involves both contractual obligations and corporate governance. Starting proceedings in the wrong forum can increase costs and delay resolution. 7. Understand the Limits of Exit and Refund Arrangements A foreign investor may seek to withdraw from the transaction, recover funds or require the founders to purchase its shares. The Indian company may instead propose a revised investment structure or a negotiated exit. The parties must examine the contractual basis for the proposed outcome. A refund, buyback, share transfer, put option or other exit arrangement may be subject to company law, FEMA pricing rules, payment restrictions and other applicable requirements. A contractual promise does not necessarily mean the parties can complete a transfer at any price or through any payment method. The permissibility of the proposed exit must be checked against the rules applicable to the particular transaction. If the agreement contains a put option, indemnity or termination provision, review its scope, conditions and limitations before relying on it. The enforceability and implementation of a remedy may depend on the precise wording, the facts and the applicable regulatory framework. 8. Protect Evidence and Manage the Business During the Dispute A dispute can create operational uncertainty, especially where the proposed investor is expected to provide essential funding. Both parties should preserve signed agreements, negotiation records, board minutes, financial statements, valuation reports, payment records and correspondence concerning the disputed terms. Communications should remain professional and consistent with the company’s legal obligations. Avoid making admissions or promises without understanding their consequences. The company should also assess whether the dispute affects existing financing arrangements, employee commitments, supplier contracts or regulatory deadlines. If the transaction is being restructured, maintain a clear record of which terms have been agreed, which remain disputed and which documents require amendment. This helps prevent inconsistent versions of the deal from circulating among founders, investors, advisers and other stakeholders. Businesses planning to establish a company with foreign capital should address dispute resolution, governance and exit provisions when structuring the investment, rather than waiting until negotiations break down.   Conclusion When a foreign investor and an Indian company disagree on investment terms, the outcome depends on the contractual documents, the stage of the transaction and the applicable regulatory framework. Negotiation may preserve the investment, while arbitration or court proceedings may become necessary if the dispute cannot be resolved commercially. The parties should establish their legal positions, preserve relevant evidence and assess FEMA and company law implications before changing the transaction, returning funds or transferring shares. A carefully documented resolution can reduce uncertainty and help both sides make informed decisions about whether to proceed, restructure or terminate the investment Frequently Asked Questions Can a foreign investor cancel an FDI transaction after signing the agreement? It depends on the agreement, the stage of the transaction and the applicable law. The investor may have termination rights if specified conditions are not met or a contractual breach occurs. Withdrawal without a valid basis may expose the investor to a claim. What happens if an Indian company refuses to issue shares after receiving foreign investment? The parties must review the agreement, payment records, corporate approvals and applicable FEMA requirements. The company may have contractual obligations arising from the payment, but the appropriate remedy depends on the facts. A refund or allotment should not be attempted without checking the relevant legal and regulatory requirements. Can an FDI dispute be resolved through arbitration in India? Yes, where a valid arbitration agreement covers the dispute and the relevant claims are legally arbitrable. The clause, governing law, seat and nature of the relief sought should be examined before proceedings begin. Can the investor recover its investment if the deal fails? Recovery depends on the contractual terms, the status of the funds and securities, the reason for termination and applicable law. Any refund or exit involving a non resident must also be assessed under the relevant foreign exchange and company law requirements. Does a commercial settlement remove FEMA compliance issues? No. The parties may settle their contractual disagreement, but the settlement does not automatically cure a regulatory contravention. Any corrective action must follow the applicable legal and regulatory process.