Business Setup

NRI Shareholders Incorporating in a Pvt Ltd Company in India

Hatim Dudhiyawala
Written by Hatim Dudhiyawala
Updated on: April 22, 202616 mins Editorial Standards
NRI company incorporation India

Today, India is developing at a rapid pace, and its booming economy is attracting many NRIs and foreigners to start businesses here. Another reason the country is attracting investors' attention is its large population and diversity. It provides a large market for the companies. Among NRIs, a private limited company is a popular mode to start a business in the country. 

Considering this, NRI directors or NRI shareholders incorporating in a Pvt Ltd Company in India need to follow specific rules. These regulations ensure compliance with FEMA regulations, the Companies Act, 2013, and the RBI guidelines. 

Want to know about NRI company incorporation in India? Read the blog and get your answers. 

Key Takeaways
  • NRIs can serve as a director or hold shares in a Private Limited Company in India.
  • To hold shares of a company in India, NRIs need to have an NRE or NRO account. 
  • NRIs can invest 100% FDI in an Indian company under the automatic route. It does not need prior approval from the government or the RBI.
  • The incorporation process is similar to resident companies but includes additional FEMA and RBI compliance requirements.
  • The transfer of shares by an NRI depends on who is transferring to whom, i.e., an NRI to another NRI, an NRI to an Indian resident, or an NRI to a person resident in India. 

Are NRIs allowed to Establish Any Company Type in India?

No, NRIs are not allowed to establish any type of company in India. Considering this, they cannot form a sole proprietorship, one-person company, or partnership type unless it is a limited company. Although an NRI invests in a startup in India, they cannot be a shareholder or director until it is a private firm. So, in simple terms, they can only start a private limited company.

From the above information, it is clear that NRIs cannot directly start a sole proprietorship or OPC, but they can invest in private limited companies, public companies, and LLPs (subject to FDI rules). Moving ahead, let's know about NRI shareholders incorporating a private limited company in India. 

NRI Shareholders Incorporating in a Private Limited Company in India

NRI shareholding in an Indian company must comply with FEMA regulations. These rules control how NRIs manage their investment activities, financial resources, and assets in India. To provide you with an idea, here is an overview of that:

Essential Bank Accounts for NRI Shareholding in an Indian Company

To hold shares of an Indian company, NRIs cannot use their regular savings account. Consider this:

  • Non-Resident External (NRE) Account: This account is used for funds earned outside India. The investments made through this account are fully repartiable.
  • Non-Resident Ordinary (NRO) Account: This account type is used for income earned in India. Using this account, you can repatriate up to USD 1 million per financial year after paying all the taxes in India. 

Sectoral Caps and Entry Routes

Under the automatic route, NRIs can invest 100% of their foreign direct investment (FDI) in private limited companies. Additionally, using the FDI policy, they can also be a part of a limited liability partnership (LLP). However, they need to obtain prior approval from the RBI or the Indian government for this.

Shareholding

The Companies Act, 2013 of India, allows NRIs and foreigners to be directors or shareholders in private limited companies. The minimum number of shareholders in a private limited company is two, and the maximum is 200. Considering this, as per FDI norms, an NRI under the automatic route allows 100% FDI. It means holding complete ownership. 

Procedure of Incorporation

The process of incorporation for NRI shareholders and directors is the same as resident shareholders and directors. However, at least one director must be a resident in India, while shareholders can be entirely foreign. 

Additionally, the documents submitted during the incorporation procedure are the same as those of the Indian shareholders. It includes ID proof, address proof, PAN card, and other documents. All of these should be notarized by a licensed professional. 

This was all about things to consider by NRIs incorporated in a Pvt Ltd company. Also, go through the checklist for starting a business in India for a better understanding. Additionally, consider taking help from experts for better results.

Moving further, let's know about the purchase and transfer of shares by NRIs in a private limited company in India. 

Purchase & Transfer of Shares by NRIs in a Pvt Ltd Company in India

The purchase of NRI shares depends on several factors. Considering this, based on the following conditions, an NRI can purchase shares/ stock/ equity/convertible debentures/ preference shares offered by an Indian company:

  • An NRI should not purchase shares more than the percentage of the Foreign Equity share that is permitted under the FDI scheme. 
  • Additionally, the FDI cap on share purchases should not be exceeded.
  • A person who is living outside India should purchase the stock.
  • The shareholding of NRIs cannot be less than that of Indian shareholders. 

It was all about buying shares. Further, the transfer of shares depends on who is transferring the shares to whom. Here are the common situations:

  • NRI to Another NRI: RBI allowed the transfer of shares of a company from one NRI to another NRI or PIO via gift or sale.
  • NRI to Indian Resident: RBI also allowed NRIs to transfer shares of a company to an Indian resident. It can be done by the way of gifting, sale on a stock exchange, or private arrangement.
  • NRI to Person Resident in India: Share transfers between NRIs and residents are generally allowed under the automatic route, subject to pricing guidelines and FEMA reporting

So, this is how NRIs can purchase or transfer shares of a private limited company in India. 

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Final Thoughts

Lastly, NRI shareholders incorporating in a Pvt Ltd Company in India is not as complicated as it looks on documents. Once you understand the steps and the requirements for the paper, NRI company incorporation becomes easy. When investing in India, NRIs need to consider FEMA and RBI regulations. These rules provide NRIs with a transparent and secure way to join in the development of India. 

However, the process of foreign investment management seeks accuracy because to achieve success, it requires precise results. Knowing this, at Savetaxs, we provide NRIs with legal assistance for their business activities in India and fulfill their asset management needs. So connect with us and make Indian regulations simple to understand and follow. 

Glossary
  • Balance Sheet: A Balance Sheet is a Financial Statement Containing Assets, Liabilities, and Equity of Shareholders.
  • Capital: Capital, a Financial Term Used for Business Operations, Like Bank Accounts, Stocks, Assets, Etc.
  • Capital Gain: Capital Gains, Profits on the Financial Assets at the Time of Selling.
  • Double Taxation Avoidance Agreement (DTAA): DTAA, an Agreement Signed Between the Countries to Avoid Double Taxation.
  • Direct Tax: Direct Tax, a Type of Tax Imposed on Income, Sales, or Property, Based on the Ability to Pay.
  • Advance Tax : Advance Tax is a Tax Paid in Advance, in Installments, During the Same Financial Year.
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Note: This guide is for information purposes only. The views expressed in this guide are personal and do not constitute the views of Savetaxs. Savetaxs or the author will not be responsible for any direct or indirect loss incurred by the reader for taking any decision based on the information or the contents. It is advisable to consult either a CA, CS, CPA or a professional tax expert from the Savetaxs team, as they are familiar with the current regulations and help you make accurate decisions and maintain accuracy throughout the whole process.

About Author
Hatim Dudhiyawala
Hatim Dudhiyawala Certified Public Accountant (CPA)

Hatim Dudhiyawala is a Certified Public Accountant (CPA) with SaveTaxs and specializes in Indian and NRI taxation. He advises individuals, NRIs, and businesses on income tax filing, capital gains taxation, DTAA benefits, fund repatriation, and tax compliance. With experience in cross-border tax matters, Hatim helps taxpayers understand complex regulations and make informed decisions. Through his articles, he shares practical insights to help readers stay compliant and manage their tax obligations with confidence. See Full Bio

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Frequently Asked Questions

Yes, an NRI can be a director of an Indian private company. To become a director, they need to obtain a director identification number (DIN) and a digital signature certificate (DSC).

Yes, an NRI can open a Pvt Ltd Company in India. Under the automatic route, without taking approval from the government, in most sectors, they can hold 100% equity. However, in the company, there should be at least one resident Indian as a director. The complete incorporation process is digital, but documents should be notarized or apostilled if signed outside the country.

Yes, NRI shareholders can repatriate their profits, investment sales, and dividend proceeds from India as per RBI regulations, authorized dealer compliances, and applicable taxes. Considering this, NRE/ FCNR accounts allow full repatriation of funds, whereas in NRO accounts, the repatriation is limited to USD 1 million per financial year.

No, an NRI doesn't need to visit India for company incorporation. The incorporation process is fully digital, done through the Ministry of Corporate Affairs (MCA) portal. Considering this, NRI directors and shareholders can submit documents such as DIN and DSC, by having them notarized and apostilled in their resident country.

Yes, an NRI can transfer shares to another NRI or a resident, subject to FEMA rules. NRIs can share transfers of shares to another NRI via gift or sale. Additionally, transfers to residents are allowed through private arrangements or the sale on a stock exchange. Also, it may require compliance, such as gifts being allowed to residents and Form FC-TRS.