Top 10 FAQs on Foreign Individuals & Foreign Companies becoming Shareholders in an Indian Company

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1.??Can foreign individuals or companies become shareholders in an Indian company?

Answer: Yes, foreign individuals and companies can become shareholders in an Indian company. They can also acquire 100% shareholding in an Indian Company.

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2.??How can a foreign individual or a foreign Company become a shareholder in an Indian company?

Answer: To become a shareholder in an Indian company foreign individual and/or a foreign Company has to acquire shareholding of that particular Indian company, execute a Shareholders Agreement, do requisite Form filing with the Indian Registrar of Companies, pay government duties and taxes and comply with the Indian Companies Act of 2013 and the amendments thereafter.

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3.??Are there any restrictions on foreign shareholding in Indian companies?

Answer: Yes, there are restrictions especially in the defense, telecom, broadcasting and the retail sector. Further, the Government of India has also set a threshold limit and has put restrictions on the foreign investment limits in these sectors. Although participation under the Make in India scheme is reasonably allowed.

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4.??What is the maximum allowed foreign shareholding in an Indian company?

Answer: The maximum allowed foreign shareholding in an Indian company depends on the sector and is subject to sector-specific FDI limits. In many sectors, the government permits 100% foreign ownership, while in certain sectors, it may be restricted to a lower percentage.

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5.??Are there any conditions attached to foreign shareholding in Indian companies?

Answer: Yes, there may be conditions attached to foreign shareholding in Indian companies, depending on the sector. For example, certain sectors require government approval for FDI beyond a certain percentage, or they may require compliance with specific regulations or licensing requirements.

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6.??Are there any reporting requirements for foreign shareholders in Indian companies?

Answer: Yes, foreign shareholders in Indian companies are required to comply with reporting requirements prescribed by the RBI and other regulatory authorities. This includes reporting initial investments, subsequent changes in shareholding, and repatriation of funds, among other things.

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7.??Can foreign shareholders repatriate their dividends and capital gains from Indian companies?

Answer: Yes, foreign shareholders can repatriate their dividends and capital gains from Indian companies, subject to certain conditions and compliance with the applicable regulations. The RBI sets guidelines for repatriation of funds, and foreign shareholders need to adhere to these guidelines.

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8.??Can foreign shareholders exercise voting rights in Indian companies?

Answer: Yes, foreign shareholders have the right to exercise their voting rights in Indian companies. The Companies Act of India grants voting rights to shareholders based on their shareholding in the company.

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9.??Can foreign shareholders participate in the management of Indian companies?

Answer: Yes, foreign shareholders can participate in the management of Indian companies but the same is subject to the clauses of the Shareholders Agreement and the Indian Companies Act of 2013 and the amendments thereafter. However, the extent of their participation and decision-making power may vary based on the shareholding and any specific agreements or arrangements in place.

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10.??????????????What are the tax implications for foreign shareholders in Indian companies?

Answer: Specific provisions are made in the tax regime for foreign shareholders. The exact tax treatment depends on the tax laws of India and any applicable tax treaties between India and the foreign shareholder's home country. It is advisable for foreign shareholders to seek professional advice on tax matters.

Authored by: Adv. Anant Sharma

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