FDI IN PRIVATE LIMITED COMPANYBy

DOBIZ INDIA

Overview of FDI in India• Foreign Direct Investment (FDI) in India is undertaken

as per the FDI Policy which is formulated and announced with the Government of India.

• Investment in Indian companies can be done by both non-resident including resident Indian entities. Any non-resident investment within a Indian company is “Direct Foreign Investment”.

Overview of FDI in India• Investment by resident Indian entities could again

comprise both resident and non-resident investments. Thus, this kind of Indian company can have “Indirect Foreign Investment” if the Indian investing company has foreign investment in it. The indirect investment may also be a cascading investment, i.e. through multi-layered structure.

FDI in Private Limited Company

Foreign direct investment in private limited company is considered under two routes:

• FDI under Approval route.• FDI under Automatic route.

FDI under Approval route• The Foreign Direct Investment in

private limited company under approval route is not automatic route of investment in the country and require prior approval of government.

• The approval becomes necessary about the proposals that involves investment or some technical collaboration with Indian ventures. FDI under Automatic route.

• The permission is granted when Foreign Investment Promotion Board (FIPB) recommended it to government for approval.

FDI under Automatic Routes• FDI in private limited company is allowed

under the automatic route without prior approval either of the Government or perhaps the Reserve Bank of India in all of activities/sectors as per the consolidated FDI Policy, issued by the Government of India from time to time.

Sectors Under RoutesApproval route

• Mining & mineral separation.• Defence Industry.• Print Media.• Airports.• Satellites.• Single Brand product retail trading.• Pharmaceuticals.• Tea Plantation.

Automatic route• Atomic Energy.• Business of chit funds.• Nidhi Company.• Trading in transferable development rights.• Lottery business including government

lottery and online lottery.• Gambling and betting including casino• Real estate business or construction of

farm house.• Activity / sector not opened to private

sector investment.

Procedure to be followed after investment under the Automatic Route or with Government approval?

A two-stage reporting procedure has to be followed:

• On receipt of share application money.• Upon issue of shares to non-resident investors.

On Receipt of Share Application Money

Within 30 days of receipt of share application money/amount of consideration from the non-resident investor, the private limited company is required to report to the Foreign Exchange Department, Regional Office concerned of the Reserve Bank of India, under whose jurisdiction its Registered Office is located, the Advance Reporting Form, containing the following details :

• Name and address of the foreign investor/s.• Date of receipt of funds and the Rupee equivalent;

On Receipt of Share Application Money• Name and address of the authorised dealer

through whom the funds have been received.• Details of the Government approval, if any;

and,• KYC report on the non-resident investor from

the overseas bank remitting the amount of consideration.

The private limited company has to ensure that the shares are issued within 180 days from the date

of inward remittance which otherwise would result in the contravention / violation of the

FEMA regulations.

Upon Issue Of Shares To Non-resident Investors

Within 30 days from the date of issue of shares, a report in Form FC-GPR- PART A together with the following documents should be filed with the Foreign Exchange Department, Regional Office concerned of the Reserve Bank of India.

• Certificate from the Company Secretary of the company accepting investment from persons resident outside India certifying that:

• The private limited company has complied with the procedure for issue of shares as laid down under the FDI scheme.

• The investment is within the sectoral cap / statutory ceiling permissible under the Automatic Route of the Reserve Bank and it fulfills all the conditions laid down for investments under the Automatic Route.

Upon Issue Of Shares To Non-resident Investors

• Shares have been issued in terms of SIA/FIPB approval No. ______ dated _______ (enclose the FIPB approval copy).

• Certificate from Statutory Auditors/ SEBI registered Merchant Banker / Chartered Accountant indicating the manner of arriving at the price of the shares issued to the persons resident outside India.

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