Patnership Firm Registration in India for NRIs

The Indian Partnership Act, 1932, regulates and governs all partnership deeds in India. In an emerging economy like India, investing seems lucrative to non-resident Indians or foreign nationals. On the contrary, their investment strengthens the Foreign Direct Investment (FDI) aspect, ultimately leading to economic growth and development. To establish a partnership firm, a minimum of two individuals need to come together to start the firm and agree on a ratio to divide its profits among themselves. Both or more partners draft a partnership contract that outlines all the regulations of the firm and its partners. This contract is commonly referred to as a partnership agreement or a partnership deed.

Advantages of a Partnership Firm for NRIs

Partnership firm brings in a lot of advantages for the Non-resident Indians (NRIs), some of which are given below:

Easy Incorporation:

Compared to other byssus setups, incorporation and partnership are relatively straightforward. Partners need to draft a comprehensive partnership deed; no other documents are required to incorporate a partnership firm. Partners can also register the firm on a later date, as partnership firm registration is voluntary.

Few Compliances

If a partnership firm is compared to other LLPs or other types of companies, the partners have to adhere to a very few complaints. Unlike an LLP or a company, a Digital Signature Certificate (DSC) is optional, and a Director Identification Number (DIN) is not required for NRIs, as there are no company directors in the partnership firm. The designated partners can make any changes to the contracts or business easily, provided all partners agree to them. Additionally, dissolving a partnership is straightforward, as it does not involve numerous legal formalities.

Savetaxs help you stay compliant with all that's needed for an NRI to start a partnership firm. We have been assisting the NRIs to set up their business in India for decades now, and our team of experts is well aware of all the provisions under the Partnership Act to help you stay compliant. From drafting a partnership deed to registering it with the RoF, we will guide you through all the crucial aspects.

Quick Decision

In a partnership firm, decision-making is relatively quick compared to other business setups, as there is no difference between management and ownership. The partners collectively make every decision for the firm and can implement them all if every partner agrees. Partners have all the power in their hands, provided they have the consent of the other partners; they can even undertake transactions on behalf of the firm.

Sharing it All

According to the partnership deed, the partners divide the profits and losses among themselves in proportion to the ratio agreed upon in the deed. This reduces the burden of loss on one person; hence, all partners are accountable for any profit or loss that may occur to the firm.

Disadvantages of a Partnership Firm for NRIs

The disadvantages associated with a Partnership firm for NRIs are:

Unlimited Liability

This is one of the most significant consequences of owning a partnership firm. All the partners of the firm will be obliged to unlimited liability as partners. The partners must bear all the firm's losses from their finances if the firm is unable to pay its debts; however, this is not the case with LLPs or companies. Even if one partner has created a liability, all the other partners will have to bear the consequences of it, and all such compliance is already mentioned in a partnership deed.

No Succession

The partnership firm will come to an end if it is declared insolvent, or a partner has died, the firm can easily be dissolved as well if any partner gave a dissolution notice of the partnership firm to the other partners, So, it is believed that a partnership firm can come to an end at any time as there is no perpetual succession.

Difficult to raise funds

As mentioned earlier, a partnership firm lacks perpetual succession; thus, this uncertainty hinders the ability to invest in the firm. Due to fewer legal compliance issues, raising funds from shareholders, venture capitalists, or angel investors can be a challenging task. Partners use their resources to raise the funds.

Restrictions for NRIs in Partnership Business

Non-repatriation Basis: As an NRI, if you join an existing internship, the employment terms are on a non-repatriation basis. Because the funds invested in the firm cannot be transferred back to the country of residence.

A Resident Partner is required: NRIs who wish to start a partnership firm must have at least one partner who is an Indian resident.

FDI and FEMA restrictions: According to FEMA guidelines and FDI regulations, NRIs are not permitted to start a partnership firm; however, they can invest in an existing partnership firm. However, to start one, you need to have prior approval from the Reserve Bank of India.

Our experts at Savetaxs can guide you through all the legal compliances that must be met before an NRI can start a partnership firm, and all such compliances will be documented in the Partnership Deed as well.

What is Partnership Registration

When you register a partnership firm with the Registrar of Firms, this process is known as partnership registration. Regardless of the state in which the firm is located, the partners can register it with the state's registrar of firms. However, registering a partnership firm is not complicated; partners can apply for registration at any time, either when establishing the firm or during its operation.

To obtain a partnership registration, you need two or more people who will come together as partners. They need to decide on the name of the firm and comply with the partnership deed. Ensure that partners cannot be a husband or wife or members of an HUF.

Why Should an NRI Register a Partnership Firm

However, in India, the Indian Partnership Act empowers the partner to register the firm, and registering a firm is not compulsory under the Partnership Act. However, it is better to register the firm as it has some benefits that an unregistered firm does not have.

The benefits are:

If a partner enforces the rights of another partner, he can sue the one who is enforcing the rights. However, on the other hand, if the firm is unregistered, the partner cannot sue the person enforcing the rights. Hence, if NRIs are looking to invest in a partnership firm, it is better to invest in one that is registered.

If a firm is registered, it can easily file a complaint or a lawsuit against any third party to enforce the rights under a contract. However, if it is an unregistered firm, filing a lawsuit is not possible.

What are the Eligibility Criteria for an NRI to start a Partnership Firm?

The eligibility criteria of an NRI to become a Partner in a firm are:

• A minimum of two partners are required to start a firm, one of whom must be a resident of India.
• FDI is not permitted in the traditional partnership firm via the automatic route.
• The business activities of the partnership firm must not fall under sectors restricted for foreign investment.
• All required permissions must be obtained from the RBI for the registration of the partnership firm, and additional permissions may be necessary if an NRI contributes to the firm's capital.

Documents NRIs Need to Start a Partnership Firm

Below is the checklist of all the documents NRIs need to start a partnership firm:

• Copy of Passport (The copy has to be self-attested and notarised/apostilled)
• Visa\OCI\PIO (as applicable)
• Overseas proof of address (utility bills or bank statements)
• PAN Card (this is mandatory for tax filing in India)
• Recent passport-sized photographs
• NOC (if required from the foreign employer)
• Foreign Inward Remittance Certificate (FIRC)
• Form FC-GPR (if applicable)

For the Firm Address in India

• You need to provide the ownership proof of the property
• Rental agreement and the NOC if the firm is either renting or leasing a property.

Documents needed for an Indian partner

As NRIs cannot solely start a partnership firm, they need to have an indian resident as their partner, so the documents required for an Indian resident are

• The Permanent Account Number (PAN) card
• Aadhar Card
• You need residential address proof
• Recent passport-sized photographs are required.

Our experts at Savetaxs help you prepare all your documents accurately, in accordance with the regulations set by the Indian Partnership Act, the RBI, and FDI. We will even verify the documents to ensure everything is accurate and complete, so the application process proceeds smoothly.

Process to Partnership Firm Registration for NRIs with Savetaxs

However, NRIs cannot directly register a partnership firm in India. They can invest in one, but if the RBI gives approval and certain conditions are met, NRIs can register the firm.

Step 1: Consultation and Eligibility Check

We initiate a consultation process to assess the NRI's status and country of residence, as well as the nature of their business, capital contribution, and the number of partners involved, including their country of residence.

Step 2: Drafting the Partnership Deed

Our legal experts draft a customised partnership deed for your firm, including capital ratios, profit sharing, roles and responsibilities, as well as special clauses for NRI preparation, arbitration, exit, and other relevant matters. Our experts are well-versed with FEMA regulations as well, so if any FEMA-compliant investment terms are required in the deed, our experts will get you that.

Step 3: Document Collection and Verification

We will guide you through the process of collecting and notarising all the necessary documents. If you do not have a PAN card, we can assist you in applying for one through our PAN Card services for NRIs.

Step 4: PAN Application for the Firm

Our experts will assist you in filing your firm's PAN application with the Income Tax Department of India. You will need a PAN for:

• Tax compliances
• Filing Returns
• Business registration
• Bank account setup and more.

Step 5: Current Account Opening in India

We coordinate with the leading banks of India to open the firm's current account. Our experts ensure proper bank account linking with the firm's PAN Card, KYC of all the partners, and more. With this, we also guide the bank's remittance documentation for a seamless inflow of funds.

Step 6: Registration of the firm with the Registrar of Firms (RoF)

However, it is not legally mandatory. As experts in the business and entity setup industry for NRIs, we recommend registering the partnership firm with the Registrar of Firms while applying through Form 1 to ensure enforceability in country entry, maintain the firm's registration level, and enhance the firm's credibility.

Our experts help you in filing Form 1 for registering your firm with the Registrar of Firms (RoF)

Step 7: FEMA and RBI Compliance Support (If NRI Contributes to Capital)

If an NRI is bringing capital to the firm and wants to repatriate profits:

Our experts analyse whether an RBI approval is required and ensure the proper inward remittance route via NRO/NRE. Our experts assist you with documentation, bank filings, and Form FC-GPR/RBI intimation, among other services.

Step 8: Post-Setup Tax and Legal Support

We don't just help you register a firm, but also provide post-setup services, tax and legal support, and guidance on staying compliant.

We help you stay compliant with GST registration, file income tax returns, TDS return filing, accounting audits, profit repatriation support, and more.

Partnership Firm Registration for NRIs With Savetaxs

Starting a partnership firm in India as an NRI comes with numerous regulations and compliance requirements under FEMA and FDI provisions. By understanding these regulations and planning strategically, NRIs can navigate this process effectively. However, it is always advisable to consult financial and legal experts who are experienced in providing NRI-specific advice to ensure that all regulatory requirements are met.

Our experts at Savetaxs help you provide tailored advice to ensure all regulatory compliances are met. We ensure that all necessary permissions from the relevant authorities are obtained in advance, allowing the entire application process to proceed smoothly. Our experts, who have over 30 years of experience, have been helping NRIs establish their businesses in India. With professional guidance and a structured business approach, Savetaxs helps you maximise your investments while mitigating all associated risks.

Savetaxs also helps you with NRI startup Registration in India, NRI preparation services, filing Income Tax for NRIs, and more.