Updated on: Oct 27th, 2021
6 min read
The Government of India permitted NRIs and foreign nationals to invest in India for attracting Foreign Direct Investments (FDI) into India. FDIs are instrumental for economic growth and development. The government permitted the NRIs as accepted entities for investment under the Foreign Exchange Management Act, 1999 (FEMA) Regulations.
The government has also extended ease of doing business for foreign nationals and NRIs by simplifying their business in India through FEMA, FDI and RBI policies. The NRIs and foreign nationals can invest in India by purchasing shares of an Indian company, investing in the capital of an existing company or registering a new business in India.
The NRIs and foreign nationals can register a private limited company, public limited company or Limited Liability Partnership (LLP) in India. The private or public limited company allows FDI into India under the automatic route in most sectors. The LLP allows FDI under the automatic route only in those sectors or activities that allow 100% FDI through the automatic route.
As per FEMA guidelines, FDI is not allowed for any other types of business like a proprietorship firm, partnership firm or one-person company. Thus, the NRIs and foreign nationals cannot start a partnership firm, proprietorship firm or one-person company in India.
Considering the FDI and FEMA regulations, the ideal type of business entity that the NRIs and foreign nationals can establish in India would be a private limited or public limited company as FDI is allowed under the automatic route for most sectors.
The foreign promoter can establish a public limited company if the number of investors in the venture is at least seven as it requires a minimum of seven members. The foreign promoter can establish a private limited company with just two members. A private limited company can have up to 200 shareholders, while a public limited company can have unlimited shareholders.
Before starting a public or private limited company, the NRIs and foreign nationals should ensure compliance with the following matters.
The Companies Act, 2013 allows the NRIs, foreign residents and foreign nationals to act as directors in an Indian company. The NRIs and foreign nationals must obtain a Director Identification Number (DIN) and Digital Signature Certificate (DSC) to become a director of an Indian company.
A private limited company must have a minimum of two directors, and a public limited company must have a minimum of three directors. There should be at least one Indian citizen director residing in India in the company established by NRIs or foreign nationals.
There should be at least two members for a private limited company and seven members for a public limited company. The private limited company can have a maximum of 200 members, whereas there is no such limit for a public limited company.
The NRIs and foreign nationals can have the shareholding in an Indian company, subject to the FDI guidelines in India. Since RBI allows 100% FDI in various sectors under the automatic route in India, obtaining ownership of shares in an Indian company by an NRI and foreign national is simple.
The proposed company must have an office address in India before going for incorporation. The NRIs and foreign nationals must ensure that the company has an office in India. The office address proof, such as the sale deed or rental agreement, must be submitted when filing the incorporation application.
When the company’s office is situated in a leased or rented property, the NOC (No Objection Certificate) from the owner of the rented or leased premises must be submitted for the use of the premises as a registered office.
The documents required by foreign nationals residing in their home country for incorporating a company in India are as follows:
All the above documents must be notarised by a Public Notary and be apostilled by the competent authority in their country of residence.
The documents required by foreign residents residing in India for incorporating a company are as follows:
All the above documents must be attested by the Consulate of the Foreign Embassy in India.
The documents required by NRIs for incorporating a company in India are as follows:
The current address proof must be notarised by Public Notary in the country of residence and apostilled by the Indian Embassy in the foreign country.
Indian company registration procedure by NRIs and foreign nationals is similar to incorporating a company by Indian directors and shareholders. The process is as follows:
The Registrar will issue the Incorporation Certificate after verification of the application and the documents.
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