Foreign direct investment up to 100% into a private limited company is under the automatic route, wherein no Central Government permission is required. Hence, incorporation of a private limited company as a wholly owned subsidiary of a foreign company or joint venture is allowed in India. This blog is pretty much written with an objective to bring in clarity on exactly what a foreign citizen planning to incorporate a Private Limited Company in India should know.
Foreign Direct Investment (FDI) into an Indian Private Limited Company:
FDI is allowed up to 100% in most sectors. Only a very few sectors require prior Central Government approval for investment by a foreign company or foreign national. The following sectors require Government Approval for investment by Foreign Company or Foreign National:
- Petroleum sector (except for private sector oil refining), Natural gas / LNG pipelines.
- Investing in companies in Infrastructure
- Defense and strategic industries
- Atomic minerals
- Print Media
- Postal Services
- Courier Services
- Establishment and operation of Satellite
- Development of Integrated Township
- Tea Sector
- Asset Reconstruction Companies
Incorporation of Private Limited Company by Foreign Nationals:
The following are the steps involved in the incorporation of an Indian Private Limited Company for foreign nationals:
Management and Shareholding Structure:
A private limited company must have a minimum of two Shareholders and two Directors. A shareholder can be a person or a corporate entity. Foreign nationals are allowed to become Directors of an Indian Private Limited Company.
The Board of Directors of the Indian Private Limited Company must have one Director who is both an Indian Citizen and Indian Resident. However, there is no requirement for the Indian Director to be a shareholder in the Company. Hence, most foreign companies or foreign nationals prefer to incorporate a company in India with three Directors – two Foreign National Directors and one Indian National Director.
The 100% shares of the Indian Company can be held by a combination of Foreign Companies and/or Foreign Nationals. Indian private limited companies require a minimum of two shareholders mandatorily. Hence, one corporate entity or person cannot hold all the shares of an Indian Private Limited Company.
Obtaining Digital Signature for Foreign National Directors:
A digital signature is required for filing the incorporation documents and continued compliance documents for a company. Hence, Digital Signatures must be obtained for one or more Director(s) of the company.
The following are the documents and information required for obtaining Digital Signature for a foreign national:
- Foreign nationals residing in India
The following documents should be certified by Individual’s Embassy:
- Resident Permit certificate issued by Assistant Foreigner Regional Registration. Officer, an officer of Bureau of Immigration India.
- Application form with Photo(attested)
- Foreign national
The following documents should be certified by the local embassy of the country to which the person belongs:
- Application form with Photo(attested)
Obtaining Director Identification Number and Name Approval:
Once Digital Signature(s) is obtained from the Director(s) of the proposed company, Director Identification Number (DIN) must be obtained for all the Directors. As per the Companies Act, 2013, a Director Identification Number is required for every individual intending to become a Director or a Company in India. Once, the digital signature is obtained, DIN can be obtained from the Director(s) quickly and easily by filling form DIR-3 with Registrar of companies.
Once, two DIN numbers are available, name approval can be obtained from the proposed Company in form INC-1.
Filing for Incorporation of a Private Limited Company:
Once name approval is obtained, incorporation documents can be filed with the Ministry of Corporate Affairs to incorporate the Company through SPICe form (INC-32). The incorporation documents to be filed includes affidavits & declarations from Directors, Memorandum of Association Subscriber Sheet, Articles of Association Subscriber Sheet and Registered Office Address proof.
The affidavit and declarations from the Directors contain a certain declaration from the Directors. Affidavit and Declaration would have to be executed independently for each of the Director and notarized (For Indian Director & Foreign Director).
Subscribing to the Memorandum of Association (MOA) & Articles of Association (AOA):
By subscribing to the MOA & AOA, the shareholders (either foreign companies or foreign nationals or Indian companies or Indian national) show their intention for becoming a shareholder in the company to be incorporated.
- In case a foreign national is signing the subscriber sheet of the MOA & AOA in India: Then the signature of the foreign Director must be verified by the public notary of that country or by the Officers of the Embassy. A copy of a valid business visa to India must be attached.
- In case the person is living in some other country: Then the signature of the Director, identity proof, and address proof must be notarized by a Notary of the country and the certificate of the Notary must be authenticated by a Diplomatic or Consular Officer.
In case a Foreign Company is a subscriber to the MOA & AOA of the proposed Indian Company:
The following documents pertaining to the foreign entity subscribing to the shares of the Indian Company must be submitted:
- Board resolution of the Foreign Entity authorizing investment in shares of the Indian Company.
- Copy of the certificate of incorporation of the foreign entity.
- Copy of address proof for the foreign company.
On submitting the above documents along with the application for incorporation of a company, the Registrar would issue a Certificate of Incorporation for the Indian Private Limited Company, if the documents submitted are acceptable.
After obtaining the incorporation certificate, the Indian Company can apply for a PAN Card, TAN number and take the necessary steps for opening a bank account for the company in India.
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