Foreigners as Shareholders in Private Limited Company

The fast economic growth of India attracts Foreign Nationals to set up business in India through FDI(Foreign Direct Investment) and Private Equity Capital. This article gives an overview of how foreign nationals can become shareholders in a Private Limited Company.

What is Foreign Direct Investment(FDI)?

It is the controlling ownership in a business enterprise in one country by a share based in another country.

What is Private Equity Capital?

Equity which means shares issued by a company and Private Equity is the stock of capital that is not intimated on a public exchange instead it is the direct investment in the enterprise. The private equity capital comes from the retail and institution investors.

Since India has continuously kept up the financial growth and the diversity in India attracts foreign nationals to invest in the Indian Market.

This is a detailed guide of a Foreigner Nationals as Shareholders in Private Limited Company.

Incorporation of a Private Limited Company is recommended for foreign nationals as it is the fastest and easiest way to enter into Indian Market.

There are certain facilities for Private Limited Companies as Foreign Direct investment upto 100% into this sector is under automatic route and there is no need for the approval of Government.

However, FDI in Private Limited Company are restricted and needs government approval, they are as follows:

  • Petroleum sector, Natural gas/LNG pipelines(this excludes private sector oil refining)
  • Investing in companies infrastructure.
  • Defence and strategic industries.
  • Print Media
  • Broadcasting
  • Tea Sector
  • Asset Reconstruction Companies
  • Postal Services
  • Courier Services
  • Atomic Minerals

There are certain steps associated with the incorporation of an Indian Private Limited Company for foreign nationals:

The Structure: The company needs to have a minimum of two shareholders and two directors, the shareholder can be a person or a corporate entity but the director needs to be a person.

A foreign national is permitted to be the director of the company. Among the directors, it is must to have at least one director of Indian origin i.e. both citizen and resident of India.

There can be a combination of Foreign Nationals or Foreign Companies holding 100% shares of the Indian Company. Hence one corporate entity cannot hold all the shares of the Indian Private Limited Company.

DSC for Foreign National Directors:

This is a very important and fundamental application form in the process of registration, hence it is needed for all the directors associated with the Company.

Documents to be attached for Foreign Nationals are:

  • ID Proof: Copy of Passport is mandatory.
  • Address Proof: It should not be older than one year from the date of filing the form.
  • Rest of the documents are all same as for the Indian National.

For a foreign national all the documents are to be notarized.

For the foreigners residing in India, the documents required are:

  • Resident Permit
  • Passport
  • Visa
  • Application form
  • passport photograph

All above documents are to be signed by Individual's Embassy. The graphical representation below will help you in understanding the filing of DSC form.

DIN and Name Approval:

According to the Companies Act, 2013, a Director Identification Number(DIN) should be obtained for the directors of the Company.

Once the DSC(Digital Signature Certificate) is obtained it is easy to get the DIN for the Directors.

There must be a minimum of two DIN numbers, to go to the next step which is Name Approval.

Filing for Incorporation of a Private Limited Company

The Name Approval is another important step and once it is done documents can be filed with the Ministry of Corporate Affairs for further incorporation of the Company.

The Documents required are as follows:

  • Affidavits & declaration from the Directors.
  • Memorandum of Association(MOA).
  • Article of Association(AOA)
  • Address Proof of Registered Office.

All the Documents needs to be Notarized for both the Indian and Foreign Directors)

Finally, after receiving the incorporation certificate, the Indian Company can finally apply for the Company PAN Card and also open a Bank Account in India. Click here to know about Private Limited Company PAN Card Application.

Still confused? To know more visit Quick Company.

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