Executing a Cross-Border Share Exit: Withholding Tax, FEMA Board Compliance in One Transaction

Client Snapshot Transaction type: Buyout of an Indian joint-venture partner's shareholding in an Infrastruce company, by its overseas co-investor. Parties:An offshore Foreign buyer; an Indian investor entity as the exiting seller; the target company itself, whose board approval and ownership records were directly affected Complexity drivers:The target company valuation, the seller's exit required consent under an existing shareholders' agreement, and the buyer being a non-resident triggered India's withholding tax and FEMA reporting requirements on top of the standard company-law process The Challenge On paper this was a straightforward buyout one shareholder exiting, the other consolidating its stake. In practice, it sat at the intersection of four separate compliance regimes that all had to close in the right order. The buyer was a non-resident entity, which meant the purchase price wasn't simply payable Indian withholding tax (TDS) had to be calculated and deducted before a rupee moved, and the buyer needed its own Indian tax registrations just to remit that tax on the seller's behalf. The target company's shares derived part of their value from freehold land it held, which meant a formal valuation had to be completed and agreed before either side could finalise a price. The seller's exit needed sign-off not just from the two transacting parties but from the target company's board and its other shareholders, since the existing shareholders' agreement gave them a say in who came in and out of the cap table. And because change of ownership in an Indian company with foreign shareholding is a FEMA reportable event, the Reserve Bank of India needed to be kept in the loop separately from, and in addition to, the income tax filings. Miss the sequencing on any one of these, and the transaction either stalls (a board that hasn't formally consented can't approve a share transfer) or creates a compliance gap that surfaces later (an unpaid or late-filed withholding tax return doesn't go away just because the shares have already changed hands). A2's Approach

We broke the transaction into five sequential stages, each of which had to be substantially complete before the next could safely begin rather than treating tax, corporate approvals, and FEMA reporting as three separate workstreams running in parallel and hoping they'd converge at closing.

Stage 1 Tax registrations before anything else moves

Before any consideration could change hands, the seller needed a PAN (Permanent Account Number) so the buyer's withholding tax deduction had somewhere to be credited, and the buyer needed a TAN (Tax Deduction Account Number) of its own to actually remit that withholding tax to the Indian government. Both of these sit upstream of everything else in the transaction without them, no payment can be made compliantly regardless of how ready the commercial terms are.

Stage 2 Corporate consent, not just commercial agreement

A willing buyer and a willing seller aren't sufficient on their own when the target company operates under a shareholders' agreement. We coordinated formal consent letters from both transacting parties to the target company's board, backed by board resolutions from each authorising a signatory to act and, because the shareholders' agreement gave other shareholders a say in the incoming/outgoing ownership, secured No Objection Certificates from them as well. The target's board had already taken the transaction on record and given preliminary approval at an earlier board meeting, which gave this stage a running start rather than a cold start.

Stage 3 Valuation and the Share Purchase Agreement

Since part of the target company's value was completed and submitted for confirmation, alongside the company's financials as of the relevant balance date and the latest government guidance value from the local sub-registrar's office the reference point Indian stamp and tax authorities use to sanity-check a declared transaction value. With valuation inputs settled, the draft Share Purchase Agreement was finalised and put before both companies' boards, along with board resolutions approving its terms and authorising signatories to execute it.

Stage 4 — Closing: signing, tax deduction, and share transfer

Once the SPA and supporting documents were signed and notarised, the consideration was released only after deducting withholding tax per the agreed valuation and calculations with that withholding tax required to reach the government by the 5th of the following month. Because the withholding tax had to be paid from an Indian bank account, we coordinated with the buyer's Indian affiliates to make that payment on the buyer's behalf. In parallel, the seller executed and returned the original share certificates and signed share transfer forms, share transfer stamp duty was paid, and the target company's board gave its formal approval to record the transfer.

Stage 5 Post-closing: the filings that don't end at signing

Completion of the share transfer wasn't the end of the compliance timeline. The seller-nominated director on the target company's board resigned, with the corresponding Form DIR-12 filed to update the official record. The Reserve Bank of India was intimated of the change in ownership, since a shift in an Indian company's foreign shareholding is a reportable FEMA event independent of the tax filings. On the tax side, the buyer's withholding tax return (e-TDS) was due by the end of January following the transaction, Form 10F was filed to support the buyer's treaty position, and both companies' income tax returns for the relevant financial year still had to be filed on their normal schedule none of which is optional simply because the shares have already changed hands.

Building the SPA to hold up on all four fronts

Because this transaction touched company law, tax, land valuation and FEMA at once, the Share Purchase Agreement itself was drafted to carry that weight: complete share certificate and distinctive-number details to avoid any ambiguity on exactly what was being transferred, clearly assigned closing-date and post-closing responsibilities for both parties, representation and warranty clauses with corresponding indemnities, and an explicit taxes-and-duties clause allocating responsibility for withholding tax, stamp duty, and any other transaction-related levies.

The Result The share transfer was sequenced end-to-end across tax registration, corporate consent, valuation, closing, and post-closing compliance with each stage's outputs (PAN/TAN, board consents and NOCs, valuation and SPA, signed transfer documents, and the post-closing filings) feeding directly into the next, rather than being coordinated reactively once a stage was already underway.

Key outcomes

• PAN and TAN secured upfront so withholding tax could be deducted and remitted compliantly from day one
• Board and shareholder consents obtained under the existing shareholders' agreement before the SPA was finalised
• Independent land valuation and updated financials incorporated into the transaction pricing
• Withholding tax deducted and routed for payment from an Indian bank account within the statutory deadline
• Share certificates, transfer forms, and stamp duty completed in the sequence the target company's board required for approval
• Post-closing filings director resignation (DIR-12), RBI FEMA intimation, e-TDS return, Form 10F, and income tax returns mapped against their actual statutory deadlines rather than left until after closing

## Why This Matters Beyond This Case Any share transfer involving a non-resident buyer or seller in an Indian company is rarely just a company-law exercise it's a company-law, income-tax, and FEMA exercise running simultaneously, and the moment a shareholders' agreement or SEZ-linked entity is involved, board governance becomes a fourth track. The transactions that stall or generate compliance gaps afterward are usually the ones where these tracks were treated as sequential afterthoughts rather than planned together from the start a valuation requested after the SPA was already drafted, or a withholding tax registration applied for after a payment date was already committed to. Sequencing all four correctly, before signing rather than around it, is what keeps a share transfer from becoming a compliance liability the day after it closes.