FDI In Private Limited Company – Connectivity improvements and regulatory freedom have benefitted globalisation and the unrestricted flow of money across international borders. Globally, companies of all sizes are growing to capture more market share and generate more revenue. Due to this climate, global firms and foreign nationals have developed a great interest in India, making it an essential market for the majority of enterprises. This essay will focus on foreign direct investment (FDI) in a private limited company, which is one of the most popular ways for foreigners to start businesses in India.

Private Limited Company

Overview of Foreign Direct Investment 

FDI In Private Limited Company

The Indian government is devoted to promoting foreign investment within the nation and has enacted a number of laws to that end. The Department of Business Policy and Promotions of the Ministry of Commerce and Industry oversees India’s FDI policy (DIPP). The DIPP services published the most recent FDI Circular on 17-4-2014 as a consolidated circular as an essential policy statement on FDI.

FDI in Private Limited Company

Private Limited Companies that receive Foreign Direct Investment (FDI) Non-resident entities may invest in camera limited companies, subject to the FDI Policy and sectoral limitations. FDI in an extremely private limited company can take one of two paths: automatic or Authorized. Most industries allow up to 100 % FDI, with the exception of those that are controlled or limited. When automatic clearance is not achievable, prior permission from the government of India’s Foreign Investment Promotion Board (FIPB) is necessary before the investment may be made. Furthermore, persons and businesses from Bangladesh and Pakistan can only invest in India with prior clearance.

Foreign direct investment (FDI) can take the form of a variety of equity instruments in a very private limited company. As long as the foundations and laws are followed, companies in India can issue equity shares, stock, and convertible debentures. The equity shares of a personal limited company issued under FDI must be priced at fair value. In the event of a newly established business or an NRI or foreigner’s subscription to the Memorandum of Association during Company Incorporation, the shares may be issued at face value.

Prohibited FDI Industries

FDI is absolutely restricted in the following sectors:

  • Atomic Power
  • The lottery industry includes both government and online lotteries (even foreign collaboration, franchise, trademark, brand name, or management contract is prohibited)
  • Gambling and betting, including casinos, are all forms of gambling (even foreign collaboration, franchise, trademark, brand name, or management contract is prohibited)
  • Chit funds are a type of investment.
  • Nidhi Enterprises
  • Transferable development rights (TDRs) are traded.
  • Construction of a farmhouse or real estate enterprise (except development of townships, roads or bridges, city, and regional infrastructure, etc.,)
  • Manufacturing of tobacco or tobacco replacement cigars, cheroots, cigarillos, and cigarettes
  • Atomic energy and railway transport (other than MRT systems) are two examples of activities or sectors that are not open to private sector investment.

FDI Through The Approval Route 

Automatic FDI into private limited enterprises is prohibited in the following industries. As a result, FIPB permission is required beforehand. 

  • Natural gas/LNG pipelines, petroleum sector (save for private sector oil refining) 
  • Investing in infrastructure and repair companies 
  • Industries involved in defence and strategic planning 
  • Minerals manufactured from atoms 
  • Media in print 
  • Broadcasting 
  • Services of the post office
  • Services for couriers 
  • Satellite installation or operation 
  • The creation of an integrated township 
  • The tea industry

FDI Via The Automated Route 

If the planned activity in India by the foreign or non-resident entity does not fall within the FDI ban or approval categories, FDI via the automatic route is permitted. If the investment is within the FDI cap, an application for FDI in a Private Limited Company via the automated process is not necessary. Under the automated procedure, no prior approval from the FIPB or RBI is required for FDI in a Private Limited Company. After receiving the share subscription money from the foreign or non-resident investor and issuing shares, the company must only file specific FDI-related files with the Reserve Bank of India.

Furthermore, an investment cannot be made through the automatic method in a firm that requires an industrial licence under the Industries Act of 1951, nor can it be made to purchase existing shares in another Indian company or to support an expansion.

It is critical to note that the bulk of Indian industries is eligible for 100 % FDI under the automatic route, which requires an FDI report only when the foreign or non-resident entity issues shares. As a result, starting a business in India is straightforward and quick for foreign nationals and non-resident Indians.