09 January 2013
An NRI Mr.A has given his power of attorney to Mr.B who is a resident in India. Can he subsequently form a partnership with Mr.A and Mr.B as the partners? Or can he form a private limited company with Mr.A & Mr.B as its members?
10 January 2013
NON-RESIDENT INDIAN AS SUBSCRIBER TO THE MOA/AOA
The Reserve Bank of India had given general permission under section 29(1)(b) of the former FERA, 1973 to NRI to subscribe to the MOA of an Indian company and to take shares as a subscriber .(Notification No. FERA 143/93-RB, dated 26-4-1993 issued by RBI, Mumbai in this regard is reproduced hereunder:
“The RBI has given general permission to NRI to subscribe to the MOA/AOA of Indian Company for the purpose of Incorporation of the company subject to the condition that:-
(a) the total face value of the shares to be taken by NRI does not exceed Rs. 10,000 (b) the company is being manly formed for undertaking industrial activities (c) the MOA of such company does not permit the company to take up any agriculture/plantation activities and to deal in real estate business other than developing real estate, and (d) such company shall file a declaration in the prescribed form with the RBI regarding particular of such shares issued within 900days from the date of incorporation of the company.
DCA Circular dated 16-2-1995 clarifies that there can not be any restriction for incorporation of a company whether all the subscriber to the MOA/AOA/ proposed directors are residing abroad, being either foreign nationals, or NRI subject to the approval of RBI, where necessary.
The RBI may issue such a general permission also under FEMA, 1999 also. The FEMA(Permissible Capital Account Transactions) Regulations, 2000 allow persons resident outside India to invest in an issue of security by body corporate or an entity in India.
Now, it has been decided by RBI through Circular No. 36 dated 26.09.2012 that in cases, where non-residents (including NRIs) make investment in an Indian company in compliance with the provisions of the Companies Act, 1956, by way of subscription to Memorandum of Association, such investments may be made at face value subject to their eligibility to invest under the FDI scheme.
03 August 2024
Yes, the principles regarding Non-Resident Indians (NRIs) subscribing to the Memorandum of Association (MOA) and Articles of Association (AOA) of an Indian company under the Foreign Exchange Management Act (FEMA) are similar to those under the Foreign Exchange Regulation Act (FERA). However, there have been updates and changes to reflect the new regulatory framework under FEMA.
Here’s a breakdown of how the provisions under FEMA align with the earlier FERA provisions and what changes have been made:
### **1. **FERA Provisions (Historical Context)**
Under FERA (Foreign Exchange Regulation Act, 1973):
- **General Permission:** The Reserve Bank of India (RBI) provided general permission for NRIs to subscribe to the MOA of an Indian company with certain conditions. - **Face Value Limit:** Total face value of shares not exceeding Rs. 10,000. - **Activity Restrictions:** The company should be formed mainly for industrial activities and not for agriculture, plantation, or real estate (except real estate development). - **Declaration Filing:** The company needed to file a declaration with the RBI regarding the particulars of shares issued.
Under FEMA (Foreign Exchange Management Act, 1999), the approach has been modernized and streamlined to align with international practices. Key aspects include:
- **FEMA Regulations:** FEMA (Permissible Capital Account Transactions) Regulations, 2000, provide the framework for investments by non-residents, including NRIs, in India. - **Investment in Indian Companies:** Non-residents can invest in Indian companies, including subscribing to the MOA and AOA, subject to compliance with the Foreign Direct Investment (FDI) policy. - **FDI Scheme:** Investments by NRIs are governed under the FDI scheme, which outlines specific conditions and limits for such investments.
- **Circular No. 36 dated 26.09.2012:** This circular updated the provisions allowing non-residents (including NRIs) to invest in Indian companies in compliance with the Companies Act, 1956, at face value, subject to FDI scheme eligibility.
### **3. **Comparison and Key Differences**
#### **A. **Similarities**
- **Eligibility:** Both FERA and FEMA provide a framework for NRIs to invest in Indian companies, including subscribing to the MOA/AOA. - **Conditions:** Investments must comply with specific conditions related to the company’s activities and the nature of the investment.
#### **B. **Changes Under FEMA**
- **No Face Value Limit:** Under FEMA, there is no specific limit on the face value of shares that NRIs can subscribe to. Instead, investments are regulated by the FDI policy and the broader provisions of FEMA. - **Activity Restrictions:** The restrictions on activities (e.g., agriculture, plantation, real estate) remain under FEMA, but they are managed through the FDI policy rather than specific RBI notifications. - **Filing Requirements:** While earlier FERA required a declaration to be filed with RBI, under FEMA, companies must comply with FDI regulations and other applicable reporting requirements.
### **4. **Practical Steps for NRIs Under FEMA**
- **FDI Compliance:** Ensure that the investment complies with the FDI policy and other regulations under FEMA. - **MOA/AOA Subscription:** NRIs can subscribe to the MOA/AOA of an Indian company, provided the company adheres to FDI norms. - **Documentation and Reporting:** The company must follow reporting requirements as per FEMA and the FDI policy.
### **Summary**
The core principles regarding NRI investment in Indian companies through subscription to MOA/AOA remain similar under FEMA as they were under FERA. However, FEMA has modernized the regulatory framework, removing specific restrictions like the face value limit and aligning with broader FDI policies. Compliance with current FDI regulations and FEMA provisions is essential for such investments.
For the most accurate guidance and compliance with current regulations, consulting with a legal or financial advisor specializing in cross-border investments and FEMA regulations is recommended.
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