The Foreign Exchange Management Act, 1999 (FEMA) classifies Non-resident Indians into two categories which are as below:
- A person who holds an Indian passport but is not a resident of India.
- A Person who holds foreign passport known also as of Indian Origin (PIO).
NRI stands for Non-Resident Indians. As per FEMA Act, 1999 Non-resident Indians are classified into two categories which are as below:
- A person who holds an Indian passport but is not a resident of India.
- A Person who holds foreign passport known also as Person of Indian Origin (PIO).
Investment in a Registration of Business:
NRI’s are permitted to subscribe to the Memorandum and Articles of Association and to subscribe to the shares of Indian companies. NRI can also start a business type in the form of a private limited company or limited liability partnership.
Shareholding:
- NRI’s are allowed to invest in a Private Limited Company as well as be a Director or Shareholder as prescribed under the Companies Act 2013.
- The Companies Act prescribes that there shall be a minimum number of 2 up to maximum 200 shareholders in the private limited company.
- RBI has allowed 100% FDI through automatic route in many sectors which resulted in a simple process.
The procedure of Incorporation:
- Incorporation is regulated by the Companies Act 2013 and is a non-cumbersome online process.
- At least one Director or Shareholder shall be of Indian Origin.
- Copies of passport and address proofs shall be attested at their respective Indian Embassies, High Commissions or Consulates as the case may be.
- A step by step procedure for incorporation is given in our blog on Incorporation of a company.
Purchase & Transfer of Shares/Debentures by NRIs in a Private Limited Company:
Investment in shares and debentures by non-residents in Indian companies as a foreign direct investment are regulated by the Reserve Bank of India. NRI are allowed to invest in accordance with the policy laid down by the RBI. The following are the conditions to be followed by the NRI while purchasing share/equity/stock/preference shares/convertible debentures.
- The percentage of the Foreign Equity which is already approved or that is permitted under FDI Scheme should not increase with the purchase of shares by the NRI.
- It should be under the sectoral cap of FDI.
- The purchase of stock should be by a person who is already staying out of India.
- The amount of share cannot be less than that of the Indian shareholders.
Transfer of Shares:
Following are the three situations of transfer:
- NRI to Indian Resident:
Such transfer shall be in accordance with the RBI guidelines. The RBI permission is required for such transfer. It can also be done by way of gift to a resident in India.
- NRI to Person Resident in India:
This needs prior permission from the Reserve Bank of India as the shares are being transferred to a person resident outside India to a person resident in India.
- NRI to another NRI:
The Reserve Bank of India has given permission to carry forward this transfer of shares of a Company from one NRI to another NRI/PIO.
Conclusion:
In India, a Private limited company is a most popular mode of investment by NRI. Non-Resident Indians can make a direct investment in a Private Limited Company. The compliance provision and incorporation procedure are simple. In case of any further question please reach out to us.
