Know Law on Foreign Investment into Indian Company

Know Law

Labz Notification 3 of 2011

A written-cum-video initiative to know your corporate legal position as on date

 

Legal Queries??

Can a foreigner start business in India with dollars? How stringent is Indian laws on non-residents? Whether India is still in strict license regime to invite foreigners? Whether transfer of money for investment purpose into India requires approval? Why this automatic & approval routes in India for investing? What is FEMA? Will my investment be safe in India? What to see when I enter into Joint venture with Indian company? Can my company have its subsidiary in India?

Solution…

Foreign Investment into Indian Company > FDI > FEMA Compliances

Foreign Investment into India might be brought in by an individual to start a company or for a joint venture in India by a corporate/MNC from abroad, the crucial point is that the investment should be accompanied by legal compliances in all respects. In India, still there are many sectors which have limits (ceilings) on investment and they require certain approvals of Boards, Reserve Bank (RBI)and Authorities based on the Foreign Direct Investment (FDI) policy of India. However, most of the requirement related to manufacturing units is allowed without reporting requirements of RBI. Read More...

 

Requirement under Indian laws on Foreign Investment into Indian Company:

Unlike other countries, Foreign Direct Investment into India is a Capital Account Transactions which is regulated under Foreign Exchange Management Act (FEMA). RBI and Ministries of Central Government regulate the administration of all FEMA transactions.  The manufacturing sector and service sector laws classifies the investments under automatic & approval route based on various levels of ceiling limits which shall be strictly complied with.  Enforcement & Investigation on contravention of FEMA is undertaken by RBI & Directorate of Enforcement, Ministry of Finance.

 

Myth buster on Foreign Investment into Indian Company:

Any company bringing monies inside India shall abide by Corporate laws of India  including Company laws, Foreign Exchange laws, Industrial laws and other Sector Specific laws read with the regulations of Company in its Memorandum & Articles of Association for the purpose of allotment of shares & issue of share certificates.  Indian Company cannot be made binding to any other agreements signed between parties.  Also note, a foreign company can start its subsidiary with 100% investments in India on compliance with legal requirements.

 

Caution point on Foreign Investment into Indian Company!!!

If your business activity falls under Approval route under the requirements of Indian laws, then you cannot remit unless you get a written permission.  Also note, automatic route is not all that automatic, you shall ensure a 3-level reporting process viz. receipt reporting, allotment reporting and periodical reporting of total inflows and all shall be done within prescribed time limits or else RBI has the power to impose a penalty of 3 times of receipt of money in India. The enforcement of the requirements of laws by RBI is at a higher level than by any other authorities in India.

 

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