Incorporation of a Private Limited Company by Foreign Nationals & NRIs

Incorporation of a Private Limited Company in India by Foreign Nationals and NRIs – A Technical Analysis of the Companies Act Framework, FDI Entry Routes, SPICe+ Mechanics, and Post- Incorporation FEMA Obligations

1. Introduction

The incorporation of an Indian Private Limited Company by a Non-Resident Indian (NRI), Overseas Citizen of India (OCI), or foreign national is entirely permissible under the Companies Act, 2013 and India’s Foreign Direct Investment (FDI) policy. Yet the regulatory compliance stack that attaches to such an incorporation — spanning the Companies Act, FEMA 1999, RBI Master Directions, DPIIT’s Consolidated FDI Policy, and the FIRMS portal — is materially more demanding than a domestic incorporation.

The gap between what most guides cover (the SPICe+ process) and what actually governs foreign-owned Indian companies (the FEMA reporting chain, FDI pricing norms, valuation methodology, and annual compliance calendar) is where most foreign founders run into regulatory defaults — often discovered only at the time of a funding round, an exit, or a remittance request.

This article provides a technical examination of the legal framework, the SPICe+ filing mechanics specific to foreign directors and subscribers, the mandatory FEMA compliance post-incorporation, and the annual compliance obligations that continue for the life of the
company.

2. Regulatory Framework — The Governing Instruments

A foreign-founded Indian company sits at the intersection of four regulatory regimes:

2.1 Companies Act, 2013

Governs the formation, structure, and ongoing compliance of the Indian entity. Key provisions relevant to foreign founders:

 Section 2(68): Definition of Private Company (maximum 200 members, restriction on public transfer of shares, no acceptance of deposits from public)

 Section 7: Incorporation procedure — mandatory SPICe+ filing with the Registrar of Companies (ROC)

 Section 12: Registered office requirement — a physical India address must be established within 30 days of incorporation

 Section 149(3): Every company must have at least one director who has stayed in India for a total period of not less than 182 days in the previous calendar year (not financial year — this distinction matters)

 Section 196 read with Schedule V: Managerial remuneration provisions applicable where the foreign founder takes a director’s salary from the Indian company

 Section 380: Registration requirement for foreign companies establishing a place of business in India (separate from subsidiary incorporation — applicable to branch/liaison structures)

2.2 Foreign Exchange Management Act, 1999 and Subordinate Legislation

 Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (“NDI Rules”) — governs FDI into India including equity instruments, pricing, and sectoral restrictions

 Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019 — governs the reporting obligations including FC- GPR

 RBI Master Direction — Reporting under FEMA, 1999 (as updated) — operationalises the FIRMS portal reporting

 RBI Master Direction — Foreign Investment in India (as updated)

2.3 DPIIT Consolidated FDI Policy

Updated periodically; currently the Consolidated FDI Policy Circular 2020 (with subsequent Press Notes) governs sectoral caps, entry routes, and conditionalities for foreign investment.

2.4 FIRMS Portal

The Foreign Investment Reporting and Management System (FIRMS) at firms.rbi.org.in is
the single portal for all FDI-related reporting — FC-GPR, FC-TRS, FLA returns, and entity
master maintenance.

3. Entity Selection — Private Limited Company vs. LLP vs. Branch/Liaison Office

Before addressing the incorporation mechanics, the entity selection decision carries significant downstream compliance and tax consequences.

3.1 Private Limited Company (Pvt. Ltd.)

The default choice for most foreign founders and NRIs. FDI under the automatic route is available for equity shares, compulsorily convertible preference shares (CCPS), and compulsorily convertible debentures (CCDs). Non- convertible instruments are treated as debt and governed by the ECB framework.

Advantages for foreign founders: – 100% FDI permitted under automatic route in most sectors – Clean equity structure amenable to VC/PE investment – Profits repatriable as dividends (subject to applicable withholding tax under DTAA) – Clear corporate governance framework under Companies Act 2013 – No cap on number of foreign shareholders (up to 200 total members for private company)

3.2 Limited Liability Partnership (LLP)

FDI in LLPs is permitted under the automatic route only for sectors where 100% FDI is allowed and where there are no FDI-linked performance conditions. FDI is not permitted in LLPs operating in sectors with FDI caps or conditions (e.g., defence, multi-brand retail). The LLP Act 2008 does not allow external commercial borrowings or issue of CCDs/CCPS — restricting future fundraising optionality significantly.

LLPs are generally not recommended for foreign-owned structures except where the business is in a service sector, the founders are certain they will not raise institutional capital, and the flexibility of profit-sharing (not tied to equity ratio) is specifically desired.

3.3 Branch Office / Liaison Office / Project Office

These are not separate legal entities — they are extensions of the foreign company in India, governed by FEMA 1999 and requiring prior RBI approval (routed through an AD Bank). A Branch Office can conduct income-generating activities; a Liaison Office cannot. A Project Office is project-specific and must be wound up after project completion.

These structures carry higher compliance burden (quarterly/annual reports to RBI through AD Bank, Annual Activity Certificate from statutory auditor) and do not provide a clean equity structure. They are generally chosen by foreign companies establishing a presence for specific purposes — not by NRIs or individual foreign founders.

4. FDI Entry Routes — Automatic vs. Government Approval

4.1 Automatic Route

No prior approval from the Government of India or RBI is required. The Indian company receives the remittance, allots shares, and files FC-GPR post-facto. The Authorised Dealer (AD) Bank is the regulatory intermediary — it verifies KYC and routes the reporting to FIRMS.

Sectors under automatic route (relevant examples): – IT and ITeS services — 100% – E- commerce marketplace model — 100% – Manufacturing (most categories) — 100% – Wholesale/cash & carry trading — 100% – Pharmaceuticals (greenfield) — 100% – Infrastructure — 100% – Start-ups (as certified by DPIIT) — 100%

4.2 Government Approval Route

Prior approval from the relevant administrative Ministry/Department (via the Foreign Investment Facilitation Portal — fifp.gov.in) is required before investment can be made.

Sectors requiring government approval include:

• Defence manufacturing — beyond 74% FDI
• Broadcasting content services — 49%
• Print media — 26% (news/current affairs)
• Multi-brand retail trading — 51%
• Satellites — 74% (establishment and operations)
• Mining of certain minerals

Critical point: The sector classification applies to the activity of the Indian company, not to its name or stated objects in the MOA. A company incorporated with broad objects may inadvertently trigger the government approval requirement when it operationalises in a restricted sector. MOA drafting must be done with the actual business activity in view.

4.3 Prohibited Sectors

FDI is prohibited regardless of route in: – Lottery business – Gambling and betting – Chit funds – Nidhi companies – Trading in Transferable Development Rights (TDRs) – Real estate business (not real estate construction/development) – Manufacture of tobacco products – Activities not open to private investment (atomic energy, railway operations with specified exceptions)

5. SPICe+ Filing Mechanics for Foreign Directors and Subscribers

The Simplified Proforma for Incorporating Company Electronically Plus (SPICe+ Form, MCA Form INC-32) is the integrated form for company incorporation in India. For companies with foreign directors or foreign subscribers, the SPICe+ process involves several technical requirements that do not apply to purely domestic incorporations.

5.1 Digital Signature Certificate (DSC) for Foreign Nationals

Every person who signs an electronic form on the MCA portal — directors, subscribers to the MOA, and witnesses — must hold a valid Class 3 DSC issued by a licensed Certifying Authority (CA) in India.

The DSC application for a foreign national requires: – Passport copy — notarised by a local Notary Public in the country of residence AND apostilled by the competent authority of that country under the Hague Apostille Convention 1961 (for Hague Convention countries) or consularised through the Indian Embassy/Consulate (for non-Convention countries) – Current address proof — utility bill, bank statement, or government-issued identity
document from the country of residence — also notarised and apostilled/consularised – Passport-size photograph – Email address and Indian or international mobile number for OTP verification – Video verification (mandatory for Class 3 DSC under the Information Technology (Certifying Authorities) Rules, 2000 as amended) Certifying Authorities licensed by the Controller of Certifying Authorities (CCA) include eMudhra, Sify, (n)Code Solutions, CDAC, and NSDL e-Gov. The USB token carrying the DSC must be physically present with the signatory when documents are signed — it cannot be

used remotely. For foreign directors signing from outside India, the token must either be physically shipped to them or the signing must be completed during a visit to India.

Timeline: DSC procurement for foreign nationals typically takes 7–15 working days factoring in apostille processing time. This is the most common bottleneck in foreign founder incorporations.

5.2 Director Identification Number (DIN)

Every proposed director must have a DIN issued by the MCA. For the first three directors in a new incorporation, DIN is allotted as part of the SPICe+ Part B filing itself — no separate DIR-3 application is required. For directors being added beyond the first three, or for directors being added to an existing company, DIN must first be obtained through Form DIR-3.

For foreign directors, the DIN application through SPICe+ requires: – Name exactly as in the passport – Father’s name (mandatory field in MCA system — foreign nationals may encounter issues if this is not on their passport; the field can be populated with “Not Applicable” but must be addressed explicitly) – Date of birth as per passport – Nationality – Occupation – Educational qualification – Permanent address and present address (if different) — foreign address is accepted – Identity proof — apostilled passport copy – Residence proof — apostilled address document

5.3 SPICe+ Part A — Name Reservation

SPICe+ Part A (alternatively, the RUN — Reserve Unique Name — facility) allows reservation of up to two company names in order of preference. The name must comply with the Companies (Incorporation) Rules, 2014:

• Must end with “Private Limited” for a private company
• Cannot be identical or nearly identical to an existing registered company or LLP
• Cannot suggest connection with the Government of India or any State Government without prior approval
• Cannot use prohibited words under Rule 8 (words like “Bank”, “Insurance”, “Stock Exchange”, “Mutual Fund” require regulatory clearances)
• Should not be a generic descriptive phrase that could apply to any company in the sector

Names are evaluated against the MCA21 database and trade mark records. An approved name is valid for 20 days from the date of reservation (extendable by 20 days on payment of fees).

5.4 SPICe+ Part B — The Incorporation Form

SPICe+ Part B is the core incorporation form. For foreign-invested companies, specific fields require careful attention:

Authorised and Paid-Up Capital: There is no minimum authorised or paid-up capital requirement under the Companies Act 2013 (the earlier ₹1 lakh minimum was removed). However: – The authorised capital determines the MCA filing fee (fee slabs apply per the Companies (Registration Offices and Fees) Rules, 2014) – The paid-up capital subscribed by the foreign founder constitutes FDI and must be valued in accordance with FEMA pricing norms (see Section 7 below) – Stamp duty on share subscription is payable per the applicable State Stamp Act (varies by registered office state) on the share subscription amount.

FDI Route Designation: SPICe+ Part B requires the incorporating entity to specify whether foreign investment will be under the Automatic Route or Government Approval Route.

Selecting the wrong route at this stage does not invalidate the incorporation, but will create inconsistency with subsequent FC-GPR filings. The route must match the sector in which the company will actually operate.

Registered Office: The address of the registered office must be specified in SPICe+ Part B. A No Objection Certificate (NOC) from the property owner and proof of address (utility bill or property document) must be attached. For foreign founders who do not yet have an India office, a virtual office address or residential address of the resident director can be used initially — but this creates complications for GST registration, which requires a commercial address for most businesses.

5.5 Ancillary Forms Filed Simultaneously with SPICe+

The SPICe+ filing is accompanied by:

• e-MOA (INC-33): Memorandum of Association in electronic format. For subscriber who is a foreign national, the MOA must be signed using their DSC. For foreign companies as subscribers, the authorised signatory of the foreign company signs using their DSC and a board resolution authorising the subscription must be attached.
• e-AOA (INC-34): Articles of Association in electronic format. Must be signed by all subscribers.
• INC-9: Declaration by first directors and subscribers that they have not been convicted of any offence or found guilty of fraud/misfeasance within the preceding five years, and that all documents filed are true and correct. Foreign nationals must also sign this.
• AGILE-PRO (INC-35): Application for GSTIN, ESIC, EPFO, bank account, and Professional Tax registration — filed simultaneously. For companies that will not immediately require GST registration, the GST fields can be left blank at this stage.

6. The Section 149(3) Resident Director Requirement — Structural Analysis

Section 149(3) of the Companies Act 2013 mandates that every company shall have at least one director who has stayed in India for a total period of not less than 182 days in the previous calendar year.

6.1 “Previous Calendar Year” vs “Previous Financial Year”

The statute uses “previous calendar year” (January 1 to December 31), not “previous financial year” (April 1 to March 31). This creates a technical compliance nuance: a director who stayed in India for exactly 182 days between April 1 and March 31 of a financial year may not satisfy the requirement if those 182 days were not distributed within the calendar year being evaluated.

For a company incorporated in January 2026, the “previous calendar year” is January–December 2025. The resident director must have stayed in India for at least 182 days during that calendar year.

For a newly incorporated company (first year of existence), the MCA has provided a relaxation: the 182-day requirement is applied on a proportionate basis for the remaining period of the calendar year from the date of incorporation.

6.2 NRI as Resident Director — the Residency Test Conflict

The FEMA definition of “Non-Resident Indian” (a person resident outside India under Section 2(w) of FEMA 1999, read with the Income Tax Act residency tests) and the Companies Act 2013 requirement for a “resident director” (182 days in India in previous calendar year) pull in opposite directions.

An NRI who spent more than 182 days in India in the previous calendar year technically satisfies the Section 149(3) requirement — but also risks losing their NRI status under the Income Tax Act for that year (with consequential tax implications on global income). This tension must be evaluated by reference to the individual’s specific facts and applicable DTAA, not assumed to be resolved by either statute.

6.3 Nominee Resident Director — Legal and Practical Framework

The most common solution for purely foreign-owned companies is the appointment of a professional nominee resident director. This arrangement is legally valid under the Companies Act but requires careful structuring:

• A Nominee Director Agreement between the company and the nominee director must be executed prior to appointment
• The agreement must specify the limited scope of the director’s role (signing MCA filings, attending board meetings as required, receiving regulatory notices)
• The agreement must contain an indemnification clause protecting the nominee from personal liability arising from acts taken on the company’s instructions
• A signed undated resignation letter from the nominee director should be held by the company, enabling swift removal if needed
• The nominee director’s DIN must be verified as active before appointment — a deactivated DIN (due to missed DIR-3 KYC) cannot be used
•  Annual DIR-3 KYC must be filed for the nominee director by September 30 each year — failure results in DIN deactivation and ₹5,000 reactivation fee

A detailed comparison of nominee director structures, documentation requirements, and transition procedures for companies replacing a nominee with an in-house resident hire is set out at accorppartners.com/services/incorporation/india-incorporation — useful reference for practitioners advising foreign-owned startups on day-one governance structuring.

7. FDI Pricing Norms — The FEMA Valuation Requirement

This is the section most guides omit entirely and where the most serious compliance errors occur.

7.1 The Pricing Guideline Under NDI Rules 2019

Rule 21 of the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 prescribes that the price at which equity instruments are issued to a foreign investor must not be less than: – The fair value as determined by a SEBI-registered Merchant Banker or a Chartered Accountant as per any internationally accepted pricing methodology on an arm’s length basis (for unlisted companies)

The key phrase is “internationally accepted pricing methodology.” In practice, the most commonly used methodologies are:

Discounted Cash Flow (DCF): Forward-looking; values the company based on projected free cash flows discounted at the weighted average cost of capital (WACC). Appropriate for companies with revenue projections.

Net Asset Value (NAV): Book value-based; appropriate for asset-heavy companies or where the DCF produces a result lower than the book value of assets.

Comparable Transaction Method: Values the company based on recent transactions in comparable businesses (EV/Revenue or EV/EBITDA multiples from peer transactions). Commonly used for early-stage technology companies where revenue multiples from comparable funding rounds are available.

The Floor Price Issue for At-Par Subscriptions: Many foreign founders subscribe to shares at face value (typically ₹10 per share) at incorporation, particularly when the company has no revenue, no assets, and no operating history. This is technically a valuation at NAV — at the time of subscription, the NAV of a newly incorporated company with ₹10 paid-up per share and no other assets is exactly ₹10 per share. However, a formal valuation certificate must still be obtained from a Chartered Accountant or SEBI-registered Merchant Banker confirming this — the CA/MB cannot simply accept the at-par subscription without issuing a certificate.

7.2 Who Can Issue the Valuation Certificate

The NDI Rules specify a SEBI-registered Merchant Banker or a Chartered Accountant (in practice — a practising CA with DISA/CISA qualification is preferred by AD Banks). The valuation must be done: – As at a date not more than 6 months prior to the date of allotment (AD Banks enforce this strictly — a valuation certificate dated more than 6
months before allotment will be rejected at the FC-GPR filing stage) – On an arm’s length basis – Using an internationally accepted methodology (as described above)

7.3 Implications of Incorrect Pricing

If shares are issued to a foreign investor at a price below the fair value determined per NDI Rules: – The difference between the fair value and the issue price constitutes a deemed gift/subsidy to the foreign investor – This triggers FEMA non-compliance — the transaction may be treated as a violation under Section 11 of FEMA 1999 – Compounding under the FEMA Compounding (Proceedings) Rules, 2000 may be required, which involves a formal
application to the RBI, a compounding fee, and a compounding order that becomes part of the company’s regulatory record – For funding rounds and eventual exits, investors’ counsel will conduct FEMA due diligence — prior pricing violations create legal risk and can delay or restructure transactions

8. Post-Incorporation FEMA Reporting — The Mandatory Sequence

The incorporation of the company is step one. The FEMA reporting sequence that follows is non-negotiable and time-bound.

8.1 Receipt of Foreign Remittance — The FIRC

Once the foreign founder transfers their share subscription amount from their foreign bank account to the Indian company’s bank account (opened post-incorporation):

• The Indian bank issues a Foreign Inward Remittance Certificate (FIRC) — this is the primary evidence of FDI receipt
• The FIRC must identify: the remitter’s name, the remitter’s country, the remittance amount in foreign currency, the INR equivalent at the conversion rate applied, the purpose code (P0018 — “Capital Account — FDI in India”), and the date of credit
• The Indian company’s AD Bank also issues a KYC report on the foreign remitter based on the KYC documents submitted by the foreign investor — this is required for FC-GPR filing

Critical: The share allotment board resolution must be passed after the receipt of funds and within 60 days of receipt (per the NDI Rules time limit for allotment). If allotment is not made within 60 days, the amount must be refunded to the foreign remitter — failing which it constitutes a FEMA violation.

8.2 FC-GPR Filing — The 30-Day Window

Form FC-GPR (Foreign Currency — Gross Provisional Return) must be filed on the FIRMS portal through the AD Bank within 30 days of the date of allotment of shares (not from the date of receipt of funds). The 30-day window runs from the allotment date as reflected in the board resolution and the updated share register.

Documents required for FC-GPR filing:

1. Board Resolution for share allotment — specifying the name of the allottee, number and type of shares, face value, issue price, and total consideration

1. Valuation Certificate from CA/Merchant Banker (dated within 6 months of allotment date)

2. FIRC from the Indian bank

3. KYC Report on the foreign investor — issued by the AD Bank of the Indian company

4. Certificate from CS/CA confirming that the allotment was made in compliance with the Companies Act 2013 and the NDI Rules

5. Declaration by the foreign investor confirming eligibility to receive FDI (not a resident of a country sharing land border with India without FIPB approval, not a citizen of Pakistan or Bangladesh without prior government approval)

6. Debit authorisation — authorization to the AD Bank to debit the filing fee Penalty for late FC-GPR filing: Up to 3× the transaction value under FEMA compounding.

Even a one-day delay technically triggers compounding liability, though the RBI’s compounding practice allows for an LSF-based regularisation for delays up to specified thresholds.

8.3 FLA Annual Return — The Forgotten Obligation The Foreign Liabilities and Assets (FLA) Return must be filed with the RBI directly (not through AD Bank) on the FLAIR portal (flair.rbi.org.in) by July 15 every year.

The FLA Return covers: – Total FDI received (outstanding as at March 31) – Total overseas investment made by the Indian company (if any) – Financial details of the Indian company — total assets, net worth, profits, dividends
The FLA Return is based on the Indian company’s audited financial statements for the financial year ended March 31. If the audited accounts are not ready by July 15, the return must be filed based on unaudited provisional figures, with a revised return filed once the audited accounts are finalised.

The FLA Return is mandatory even if no new FDI was received during the year — as long as outs tanding FDI from prior years is on the books, the annual FLA filing obligation continues. Missing the FLA deadline (unlike FC-GPR) does not attract an automatic penalty structure, but the RBI treats it as a FEMA violation and compounding may be required for
significant delays.

9. Document Authentication — Apostille vs. Consularisation

Documents issued in foreign jurisdictions must be authenticated before Indian authorities (MCA, ROC, AD Banks) will accept them. The authentication route depends on whether the country of issue is a signatory to the Hague Convention Abolishing the Requirement of Legalisation for Foreign Public Documents (the “Apostille Convention”) of October 5, 1961.

9.1 Hague Convention Countries — Apostille Route

For documents from countries that are parties to the Apostille Convention (USA, UK, Singapore, Australia, UAE since 2021, most EU countries, Canada): – The document is authenticated by the Competent Authority designated by that country – The authentication takes the form of an Apostille certificate affixed to or appended to the document – No further authentication by the Indian Embassy/Consulate is required – The apostilled document is accepted directly by Indian authorities Country-specific competent authorities: – USA: Secretary of State of the relevant state (e.g., California Secretary of State for California-notarised documents) – UK: FCDO (Foreign, Commonwealth & Development Office) Legalisation Office — current turnaround: 2–3 working days postal, same-day counter in Milton Keynes; fee: £30 per document – Singapore: Singapore Academy of Law (SAL) — e-Apostille available; turnaround: 3–5 working days – Australia: Department of Foreign Affairs and Trade (DFAT) — online submission available; fee: AUD 125 per document

9.2 Non-Hague Convention Countries — Consularisation Route

For documents from countries not party to the Apostille Convention: – Notarisation by a local Notary Public in the country of origin – Attestation by the Ministry of Foreign Affairs (or equivalent) of the country of origin – Attestation by the Indian Embassy or Indian Consulate in that country – This three-step process is the “consularisation” or “legalisation” route and typically takes 3–6 weeks

9.3 Which Documents Require Apostille for India Incorporation

Document Apostille Required?

Passport copy (for DSC application) Yes
Address proof (for DSC application) Yes
Passport copy (for DIN application via SPICe+)

Yes Address proof (for DIN application) Yes Power of Attorney (where applicable) Yes Board Resolution of foreign company subscriber

Apostille + notarisation Charter documents of foreign company (MOA/AOA of foreign parent)

Apostille + notarisation Subscriber’s signature on e-MOA/e-AOA Done via DSC — no separate apostille required

A practical jurisdiction-by-jurisdiction apostille guide, including current processing times and fees for the UK, USA, Singapore, Japan, and UAE, is maintained at accorppartners.com/services/incorporation/india-incorporation — practitioners advising foreign clients on documentation preparation may find this useful for setting realistic
timelines.

10. Annual Compliance Calendar for Foreign-Owned Indian Private Limited Companies

Post-incorporation, a foreign-owned Indian Pvt. Ltd. carries a compliance calendar that is approximately 40% heavier than a domestically-owned company of equivalent size, due to the additional FEMA/RBI layer.

10.1 Companies Act Annual Obligations

Filing Form Due Date Remarks Annual Return MGT-7 / MGT-7A Within 60 days of AGM

Lists shareholders
— foreign
shareholding must
be accurately
reflected

Financial
Statements

AOC-4 Within 30 days of

AGM

Audited P&L,
Balance Sheet,
Directors’ Report,
Auditor’s Report

AGM — Within 6 months of
financial year end
(September 30)

First AGM within 9
months of first
financial year end

Director KYC DIR-3 KYC September 30
annually

Every director with
DIN — DIN
deactivated on non-
filing, ₹5,000
reactivation fee

Beneficial
Ownership

BEN-2 Within 30 days of
significant beneficial
owner becoming
such

Foreign founders
must be disclosed as
Significant
Beneficial Owners

MSME Payment
Return

MSME-1 April 30 and
October 31

If company has
MSME suppliers
with outstanding
payment > 45 days

10.2 FEMA/RBI Annual Obligations

Filing Portal Due Date Remarks
FLA Return FLAIR
(flair.rbi.org.in)

July 15 Mandatory if FDI
outstanding; based
on March 31
financials

APR (if company FIRMS (AD Bank) December 31 Separate obligation also has overseas subsidiary) if the Indian company itself has made ODI

10.3 Event-Based FEMA Obligations

Event Form Deadline Fresh FDI inflow (new allotment to foreign investor)

FC-GPR via FIRMS Within 30 days of allotment

Transfer of shares from resident to non-resident

FC-TRS via FIRMS Within 60 days of receipt/payment of consideration

Transfer of shares from non-resident to resident

FC-TRS via FIRMS Within 60 days of receipt/payment of consideration

Conversion of convertible instruments to equity

FC-GPR via FIRMS Within 30 days of allotment post-conversion

Issue of Employee Stock Options to non-residents

ESOP reporting via FIRMS Periodic

10.4 Significant Beneficial Owner (SBO) Disclosure — Section 90

Section 90 of the Companies Act 2013 requires every company to identify and maintain a register of Significant Beneficial Owners (SBOs) — defined as individuals who ultimately hold more than 10% of shares or voting rights, or who have the right to receive more than 10% of the distributable dividend.

For foreign-owned companies, the SBO disclosure exercise requires: – Identifying the natural persons who are the ultimate beneficial owners, tracing through intermediate holding entities – Serving notice in Form BEN-4 on each potential SBO – Maintaining the SBO register in Form BEN-1 – Filing Form BEN-2 with the ROC within 30 days of the SBO becoming such

Foreign founders who hold shares directly are straightforward SBO disclosures. Structures involving foreign trusts, holding companies, or funds require analysis of where natural- person control ultimately rests — a technically intensive exercise governed by Section 90 read with the Companies (Significant Beneficial Owners) Rules, 2018.

11. Repatriation of Profits — Dividend Withholding and DTAA Application

Once the Indian company is operational and profitable, the foreign founder’s primary mode of extracting value is through dividend distribution. The tax treatment depends on the applicable DTAA.

11.1 Withholding Tax on Dividends Under Domestic Law

Under Section 194 of the Income Tax Act 1961, dividends paid to a non-resident shareholder are subject to TDS at 20% (plus applicable surcharge and cess) under the domestic law. This rate is reduced under applicable DTAAs.

11.2 DTAA Rates for Key Jurisdictions

Jurisdiction DTAA Dividend Rate Conditions USA 15% (general) / 25% (if <

10% holding)

India-USA DTAA, Article 10

UK 15% (general) / 10% (if ≥

25% holding)

India-UK DTAA, Article 10

Singapore 15% (general) / 10% (if ≥

25% holding)

India-Singapore DTAA,
Article 10

UAE 10% India-UAE DTAA, Article 10
Japan 10% (if ≥ 25% holding) /

15% (others)

India-Japan DTAA, Article
10
Canada 15% (general) / 25% (if <

10% holding)

India-Canada DTAA, Article
10

To claim the DTAA rate, the non-resident shareholder must furnish: – Tax Residency Certificate (TRC) from the competent authority of the country of residence – Form 10F (self-declaration) filed with the Indian tax authorities – Declaration that the shareholder is the beneficial owner of the dividends Without the TRC and Form 10F, the Indian company must withhold TDS at the domestic rate of 20%.

11.3 Repatriation Route

Dividends, once declared and paid net of TDS, can be freely repatriated to the foreign shareholder’s account without further RBI permission. The AD Bank may require a CA certificate confirming that taxes have been paid before processing the outward remittance.

12. Common Compliance Failures — A Practitioner Reference

Practitioners advising foreign clients on India incorporation routinely encounter the following compliance failures:

12.1 Share allotment without FEMA valuation certificate The most common. Founders allot shares at ₹10 face value without obtaining a CA/MB valuation certificate, treating the at-par subscription as self-evident. This is technically non-compliant — a certificate must be issued regardless of the subscription price.

12.2 FC-GPR filed beyond 30 days The 30-day window from allotment is frequently

missed because the client-facing process is perceived to be complete at allotment — the FC- GPR is deferred and missed. Set a calendar reminder on the allotment date.

12.3 FLA Return missed in year two Year-one FLA is typically managed by the incorporation advisor. Year-two compliance responsibility shifts to the company and is often missed. FLA is an annual obligation for the life of the company as long as FDI is outstanding on the books.

12.4 Section 90 SBO non-filing SBO registers and BEN-2 filings are among the most neglected obligations. MCA has been issuing notices to companies for non-filing — the penalty structure under Section 90(10) provides for fines of ₹10 lakh to ₹50 lakh and ₹1,000/day for continuing default.

12.5 Resident director DIN deactivation The nominee/resident director’s DIN deactivated due to missed DIR-3 KYC means no MCA form can be signed. This creates an operational paralysis for the company — bank account signatories, ROC filings, and board resolutions all require director signatures on the MCA system.

12.6 Registered office address not updated after office shift Penalties for non- maintenance of registered office under Section 12 are ₹1,000/day up to ₹1 lakh. More practically, the company will miss notices from ROC, GSTIN authority, and Income Tax department.

13. Conclusion

The incorporation of an Indian Private Limited Company by a foreign national or NRI is a technically viable process that the MCA has substantially digitised. The SPICe+ form can be completed entirely online; DSCs can be issued to foreign nationals; apostilled documents are accepted without physical presence.

The genuine complexity lies not in the incorporation process itself but in the FEMA compliance chain that begins the moment the first foreign remittance arrives — FC-GPR within 30 days of allotment, FDI pricing norms that require pre-allotment valuation certification, and the annual FLA return that continues for the life of the company. Layered on top is the Companies Act annual compliance calendar, the SBO disclosure regime, and the DTAA-based dividend withholding structure.

Practitioners advising NRIs and foreign founders should approach the engagement as a four-stream exercise: Companies Act incorporation → FEMA FDI compliance → annual ROC filings → annual RBI reporting. Treating these as sequential rather than concurrent is the primary source of the compliance gaps that surface during funding due diligence and exit transactions.

References

1. Companies Act, 2013 — Sections 2(68), 7, 12, 90, 149(3), 196, 380

2. Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 — Rule 21 (Pricing norms)

3. Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019

4. DPIIT Consolidated FDI Policy Circular 2020 (with subsequent Press Notes)

5. RBI Master Direction — Reporting under FEMA, 1999 (as updated)

6. Companies (Significant Beneficial Owners) Rules, 2018

7. Companies (Incorporation) Rules, 2014

8. Hague Convention Abolishing the Requirement of Legalisation for Foreign Public Documents, 1961

9. Information Technology (Certifying Authorities) Rules, 2000

10. For a practitioner-oriented walkthrough of the SPICe+ process for foreign directors, resident director structures, country-wise apostille requirements, and the FC-GPR dossier — including the FEMA compliance checklist for NRI and foreign founders — refer to: accorppartners.com/services/incorporation/india-incorporatio