Globalization and the free flow of capital across countries have benefited from increased connectivity and regulatory flexibility. Businesses of all sizes are expanding internationally in order to gain market share and increase revenues. In this environment, India has emerged as a crucial market for most firms, with a high level of interest among global corporations and foreign nationals to set up shop in the country. Foreign Direct Investment (FDI) is one of the most common ways for foreigners to start a business in India, and we’ll look at FDI in a Private Limited Company in this post.

Overview of Foreign Direct Investment 

FDI In Private Limited Company

The Indian government is committed to attracting foreign investment within the country and has implemented a variety of policies to try to do so. India’s FDI policy is governed by the Ministry of Commerce and Industry’s Department of business Policy and Promotions (DIPP). the newest FDI Circular was issued on 17-4-2014 by the DIPP services as a consolidated circular as an important policy note on FDI.

FDI in Private Limited Company

Foreign Direct Investment (FDI) privately Limited Companies Non-resident entities are permitted to take a position in camera limited companies, subject to the FDI Policy and sectoral caps. FDI in an exceedingly Private Ltd. might take one of two routes: automatic or approved. FDI is allowed up to 100% in most sectors, with the exception of those that are regulated or restricted. In circumstances where automatic approval isn’t possible, prior approval from the govt of India’s Foreign Investment Promotion Board (FIPB) is required before the investment may be made. Furthermore, Bangladeshi and Pakistani citizens and corporations can only invest in India with prior authorization. 

Foreign direct investment (FDI) in a very private limited firm can take the shape of a spread of equity instruments. Companies in India can issue equity shares, stock, and convertible debentures, as long as they follow the foundations and regulations. a personal limited company’s equity shares issued under FDI must be valued at fair value. The shares may be issued at face value within the case of a newly incorporated firm or an NRI or foreigner’s subscription to the Memorandum of Association during Company Incorporation.

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, management contract is prohibited)
  • Gambling and betting, including casinos, are all forms of gambling (even foreign collaboration, franchise, trademark, brand name, 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 activity proposed by the foreign or non-resident firm in India does not fall under the FDI prohibition or approval categories, FDI through the automatic route is allowed. If the investment is within the FDI cap, an application for FDI in a Private Limited Company is not required via the automatic method. For FDI in a Private Limited Company, no previous clearance from the FIPB or RBI is necessary under the automatic method. The Company must only file particular FDI-related files with the Reserve Bank of India after receiving the share subscription money from the foreign or non-resident investor and issuing shares. 

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

It is vital to remember that the majority of Indian sectors are eligible for 100 percent FDI through the automatic method, which requires an FDI report to be filed only when the foreign or non-resident business issues shares. As a result, for foreign nationals and non-resident Indians, launching a business in India is quite simple and quick.