Company Formation in India

Company Formation in India

Foreign Direct Investments in India

What are the forms in which business entity can be conducted by a foreign company in India?

  • Incorporate business as Company Law, 1956
  • Liason, Branch, Representative office can be opened by the permission of Foreign Exchange Management, India
What is the procedure for receiving Foreign Direct Investment in an Indian company?
  • It can be by the approval of government bodies or directly without prior approval of Government

What are the instruments for receiving Foreign Direct Investment in an Indian company?

Any foreign investment into an instrument issued by an Indian company which:
  • gives an option to the investor to convert or not to convert it into equity or
  • does not involve upfront pricing of the instrument as a date would be reckoned as ECB and would have to comply with the ECB guidelines.
Which are the sectors where FDI is not allowed in India
FDI is prohibited under the Government Route as well as the Automatic Route in the following sectors:
i) Atomic Energy
ii) Lottery Business
iii) Gambling and Betting
iv) Business of Chit Fund
v) Nidhi Company
vi) Agricultural (excluding Floriculture, Horticulture, Development of seeds, Animal Husbandry, Pisciculture and cultivation of vegetables, mushrooms, etc. under controlled conditions and services related to agro and allied sectors) and Plantations activities (other than Tea Plantations)
vii) Housing and Real Estate business (except development of townships, construction of residen­tial/commercial premises, roads or bridges to the extent specified in
viii) Trading in Transferable Development Rights (TDRs).
ix) Manufacture of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes.
(Please also see the website of Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce & Industry, Government of India at for details regarding sectors and investment limits therein allowed, under FDI)
What is the procedure to be followed after investment is made ?
A two-stage reporting procedure has to be followed :
On receipt of share application money:

Within 30 days of receipt of share application money/amount of consideration from the non-resident investor, the Indian 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;
  • 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 Indian 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 company has complied with the procedure for issue of shares as laid down under the FDI scheme as indicated in the , as amended from time to time.
• 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
What are the reporting obligations in case of transfer of shares between resident and non-resident?
The transaction should be reported by submission of form FC-TRS to the AD Category – I bank, within 60 days from the date of receipt/remittance of the amount of consideration. The onus of submission of the form FC-TRS within the given timeframe would be on the resident in India, the transferor or transferee, as the case may be.
Can a foreign investor invest in Preference Shares? What are the regulations applicable in case of such investments?
Yes. Foreign investment through preference shares is treated as foreign direct investment. However, the preference shares should be fully and mandatorily convertible into equity shares within a specified time to be reckoned as part of share capital under FDI. Investment in other forms of preference shares requires to comply with the ECB norms.
Can a foreigner set up a partnership/ proprietorship concern in India?
No. Only NRIs/PIOs are allowed to set up partnership/proprietorship concerns in India on non-repatriation basis.
What will be mode of payment for the non-resident permitted to acquire share on stock exchange under FDI scheme?
The Non-Resident permitted to acquire shares under the scheme can use following mode for payment of shares:
  • by way of inward remittance through normal banking channels, or
  • by way of debit to the NRE/FCNR account of the person concerned maintained with an authorised dealer/bank;
  • by debit to non-interest bearing Escrow account (in Indian Rupees) maintained in India with the AD bank in accordance with Foreign Exchange Management (Deposit) Regulations, 2000;
  • the consideration amount may also be paid out of the dividend payable by Indian investee company, in which the said non-resident holds control, provided the right to receive dividend is established and the dividend amount has been credited to specially designated non-interest bearing rupee account for acquisition of shares on the floor of stock exchange.
Whether transfer of funds is allowed from NRO
It is clarified that the transfer of funds on account of net sale / maturity proceeds (net of all applicable taxes), of shares / debentures may be allowed by the AD Bank from NRO – PIS account of a NRI to the said NRI’s NRE account, subject to the following conditions :-
  • such transfer of funds should be within the overall ceiling of USD one million per financial year;
  • subject to payment of tax, as applicable (i.e. as applicable if funds were remitted abroad); and
  • The AD should ensure the compliance with the limit of USD one million for transfer of funds by the NRI.
  • 100 % own share holding company
  • Joint Venture Company
  • Branch Office
  • Work Permit, Visa
  • Factory set up, S & F Consulting Firm Limited , Email:


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