Foreign Direct Investment (FDI) in Proprietorship/ Partnership
Firms
For a country where capital is not readily available, Foreign Direct
Investment (FDI) has been an important source of funds for
companies. Under FDI, overseas money, either by an individual or
entity, is invested in an Indian company.
Moreover, FDI in India is now a boom since the Government of
India has opened up the ways for FDI by simplifying the process
and allowing 100% investment almost in 90% sectors in India.
Moreover after the pandemic of COVID-19, various countries are
also intending to move from China to India.
As we all know that Foreign Companies/ Foreign Nationals/ NRIs/
PIO can invest in India via acquiring the Shares/ Debentures of
various Indian Companies. But since there are a no. of compliances
required to be followed in case of companies and withdrawing of
money is not as easier as compared to partnership firms or
proprietorship firms where the owners can withdraw the money any
time they desire. Since, in case of companies, the only way to
withdraw their money is in form of Dividend or sale of their shares to
any third party. So, there arise many a times in minds of our Foreign
Clients who are NRI/ POI/ Foreign National, to invest in
Proprietorships or in Partnerships. Here, we have shall be
discussing whether FDI is allowed in Proprietorship Firms/
Partnership Firms in the form of FAQ.
Q. 1: Whether FDI is allowed in entities viz Partnership Firms/
Proprietorship Firms?
Ans.: Only a Non-Resident Indian (NRI) or a Person of Indian Origin
(PIO) resident outside India can invest in the capital of a firm or a
proprietary concern in India on non-repatriation basis subject to the
following conditions;
1. Amount is invested by inward remittance or out of
NRE/FCNR(B)/NRO account maintained with Authorized
Dealers/authorised banks.
2. The firm or proprietary concern is not engaged in any
agricultural/plantation or real estate business or print media sector.
3. Amount invested shall not be eligible for repatriation outside
India.
Q 2: Can Investment be also made on repatriation basis?
Ans. Investments with repatriation option: NRIs/PIO may seek prior
permission of Reserve Bank for investment in sole proprietorship
concerns/partnership firms with repatriation option.
The application
will be decided in consultation with the Government of India.
Q 3: Can a Foreign National other than NRI/ PIO also invest in
Partnership Firms/ Prop. Firms?
Ans.: Investment by non-residents other than NRIs/PIO: A person
resident outside India other than NRIs/PIO may make an application
and seek prior approval of Reserve Bank for making investment in
the capital of a firm or a proprietorship concern or any association of
persons in India. The application will be decided in consultation with
the Government of India.
Moreover, An NRI or PIO is not allowed to invest in a firm or
proprietorship concern engaged in any agricultural/plantation activity
or real estate business or print media.
Conclusion: So from above, it is very much clear that though the
investment can be made in Proprietorship/ partnership Firms, but it
is necessary to be kept in mind by the NRIs/ Foreign Nationals that
they cannot repatriate the money earned/ capital back to their
country.
However this can be beneficial for such NRIS who are
having money idle in their NRO accounts to make best use of such
money and to earn more income by investing such money again in
any Prop./ Partnership Business in India.
Disclaimer: The author is a practicing company Secretary deal in
Secretarial and FDI Matters and also a Certified CSR Professional
who deals in matters pertaining to Corporate Social
Responsibility. The information contained in this write up, as
provided by the author, is to provide a general guidance to the
intended user.
The information should not be used as a substitute
for specific consultations. Authors recommend that professional
advice is sought before taking any action on specific issues.
Web : https://corporatedrafting.com/
