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.
The author can be however contacted for further clarification at csmohitsaluja@gmail.com
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