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Investing in Unlisted Companies: An NRI Guide

India remains an attractive investment destination for NRIs. The regulations regarding such investments have been liberalized over the years, facilitating more remittances. You do make substantial investments in equities through mutual funds and Portfolio Investment Schemes (PIS). But as an NRI, can you invest in unlisted companies in India?

The answer is yes, you can. There are three ways in which you can do it:

  • By becoming the promoter-cum-director of a new venture
  • By becoming the stakeholder in a private limited company
  • By purchasing shares in public limited companies that haven’t been listed yet

Guidelines for NRIs investing in private limited companies

The Foreign Exchange Management Act (FEMA) Rules, 1999, lay down the guidelines regarding investment by NRIs in private companies in India. There are two ways in which you can invest in an unlisted company. They are:

  • Investment in the incorporation of a new company
  • Investment in an already-existing private company

Investment in the incorporation of a new company

In recent years, the Government of India has eased regulations regarding investment by NRIs in India. The documentation can be done online, and the entire process is faster. And the laws governing private companies are less stringent than those for public companies.

  • You can start a private limited company or a Limited Liability Partnership
  • You can become a director in a private limited company. Directors can also buy shares and become stakeholders.
  • The upper limit of the investment will be as laid down in government regulations.

Investment in an existing private company

You can buy equity or preference shares and debentures of a private limited company. This is also considered FDI (Foreign Direct Investment) and will have to conform to the Reserve Bank of India (RBI) guidelines. You will also have to adhere to relevant sectoral restrictions.

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