How Private Limited Company can take investment?

In the business industry all the forms of Company needs funding in order to maintain and grow the business. Also, huge capital investment is required based on the demand of the business in order to start the Company. However, Proprietorship, Partnership firms and Limited Liability Partnerships are not able to issue shares which further makes them unable to attract any equity funding. On the other hand, Private Limited Company allows/issues shares thereby attracts the investors to add capital to the Company. Funding/Investment can be given by anybody from family members, to friends, or by debt/equity. A Private Limited Company can also take Foreign investments, through the automated route and approval route. However there are some sectors where it is prohibited. Since the liability of the shareholders or the investors are restricted to their shares only hence it is likely for them to invest in a Private Limited Company.

FDI in Private Limited Company

With the increase in the connectivity and alleviation of regulatory regimes, there is an increase in the globalization and flow of capital across the countries.

With the introduction of globalization, all kind of business from small to big have a bigger market to expose their business and since India is a developing country with a massive population, foreign investors express their interest in setting up business in India.

Even Indian Government is keen for the Foreign investments as it helps in the growth of economy of the country and further helps in development.

According to regulations, only non-resident entity or person staying outside India can conduct FDI in India. This is regulated by DIPP(Department of industrial Policy)

There are some sectors in which a Foreign Direct Investment cannot be carried forward, they are;

  • Nidhi Company
  • Business of Chit Funds
  • Atomic Energy
  • Lottery Business
  • Trading in transferable development rights.
  • manufacturing of Tobacco
  • Railway transport
  • Casino

FDI through Approval Route, there are few sectors which requires prior approval of the FIPB and they are as follows;

  • Postal Services
  • Courier Services
  • Establishment & Operation of Satellite
  • Tea Sector
  • Atomic mineral
  • Broadcasting
  • Petroleum Sector
  • Defense and Strategic Industries
  • Integrated Township

FDI under the automatic route is the most convenient one as it doesn't need any approval, if the investment is within the FDI cap then an application for FDI in Private Limited Company is not needed.

All that is needed for Automatic route is that the Company must file certain documents with the Reserve Bank of India after receiving the receipt of the share subscription money from the foreign resident.

Majority of the sectors allow 100% FDI hence it is very easy for the foreign nationals to start up a business in India.

Hence, it is recommended for the investors to invest in the Private Limited Companies.

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