Foreign direct investment (FDI) is an important source of non-debt finance and hence a factor in the economic development of a country. Apart from supplementing domestic investment, it brings with it internationally available technologies, managerial skills and practices, and new employment opportunities. Although India has been a preferred destination for foreign investors for long, the recent upsurge in flow of funds into the country is quite remarkable and encouraging.

According to the World Investment Report, 2020 of the United Nations Conference on Trade and Development (UNCTAD), India jumped from 12th spot in 2018 to 9th spot in 2019 on the list of global top 20 recipients of FDI. In other words, India was among the top 10 recipients of FDI. FDI inflows into India increased from US$ 44 billion in 2018 to US$ 51 billion in 2019.  Similarly, as per the quarterly Fact Sheet on FDI released on November 27, 2020 by the Department for Promotion of Industry and Internal Trade (DPIIT), Government of India, FDI into India totaled US$ 30 billion during the first half (April to September) of the current fiscal year (2020-21) as compared to US$ 26 billion for the same period last year (2019-20), recording an increase of 15 percent.

Why India has become a hotspot for foreign investments? There are several good reasons for investing in India. Let’s see them:-

  • Large and Expanding Size of the Market
  • India as an Alternative to China
  • Ease of Doing Business
  • Digital Revolution
  • Well-managed Public Finances
  • Robust and Resilient Financial System
  • Strong and Diversified Industrial, Infrastructural and Logistics Base
  • Innovations and Startup Hub
  • Exchange Rate Policy and Foreign Exchange Reserves
  • Political Stability and Cordial International Relations


Similarly starting a company in India for the foreign investors is not a huge hindrance. Minimum 2 directors and shareholders are required out of them one must be resident in India. But the incorporated companies as well as the investors have to ensure that they have complied with all the laws and regulations which are applicable to them.  Now let’s see what the newly incorporated company and the foreign investors have to comply with.





Compliance for the Newly Incorporated Companies under the Companies Act 2013

  • First meeting:As per Section 173(1), of The Companies Act 2013, the company shall hold a meeting of the Board of Directors in less than 30 days from the date of its incorporation. Directors are permitted to attend the meeting either in person or through video conferencing.


  • Bank account: Companies need to have a bank account even before approaching the authorities for company incorporation. Since the company is an artificial entity, the transactions cannot be done in the name of any natural person.


  • Official address: As per Section 12(1), a company shall have a registered office within 15 days from the date of incorporation. This address shall be used to receive all official communication from the various authorities. The company shall inform the same to the registrar within 30 days from the date of incorporation.


  • It’s all in the name: Every company shall be required to affix its name at all places from where it carries on its business operations. It shall be displayed in the language which is generally used in the locality. Additionally, the company has to get a seal with its name engraved on it, letterheads with appropriate information and printed negotiable instruments.


  • Auditor: According to Section 139(1), the first auditor shall be appointed by the Board of Directors (BOD), except for a government company, within 30 days from the time the company is registered. Failing which, the members shall appoint the auditor within 90 days at an extraordinary general meeting. The term of the first auditor shall be until the conclusion of the first annual general meeting.


  • Interest disclosure:At the first board meeting, every director shall disclose his interest in any company/firm/body corporate/association of individuals as outlined in section 184(1) of the Companies Act 2013. Any changes in the disclosures shall be intimated to the board in its first meeting held during each financial year. An independent director, if any, must give a declaration that he meets the criteria of independence during the first board meeting as a director.


  • Statutory registers: The Company shall be required to maintain statutory registers at the registered office of the company. The same shall be maintained in the prescribed form failing, which the company will be subject to penalties.


  • Infusion of initial capital by subscribers to memorandum :The subscribers to the Memorandum of Company has to bring the amount of subscribed capital as stated in the Memorandum of Association at the time of company registration within 60 days of incorporation. There is no explicit conditions in Companies Act as to this time limit 60 days for bringing the capital. However, the company is required to issue share certificate to the shareholders within 60 days of incorporation. In order to comply requirements of issue of share certificates in time, it is advisable to bring the subscribed capital with 60 days of incorporation. Infusion of capital to the Company bank account should happen preferably from the respective shareholder’s account. Also, the shareholder has to bring the entire amount of subscribed capital as stated in the Memorandum of Association.


  • Share certificate: The share certificate shall be issued to a shareholder within 60 days from the date of incorporation. In case of additional shares being allotted, the time period is taken as 60 days from the date of allotment. Within 30 days from the date of allotment of share, Return of Private Placement is required to be filed with ROC in Form PAS-3. If shares are not issued within 60 days, then the money is required to be refunded within 15 days otherwise 12% p.a. Interest is payable from the 61st day of allotment.


  • Books of Accounts: As per section 128, every company shall maintain proper books of accounts which shall represent an accurate and fair view of the state of affairs of the company. The double entry system shall be followed, and the accounting is done on an accrual basis.


  • Commencement of business certificate:Within 180 days, the company shall obtain a certificate of commencement of business. There is a requirement to file a disclosure made by the directors of the company stating that every subscriber has paid the amount due on the shares i.e. INC20A


  • Shop and Establishment Registration: Every Business Establishments are required to obtain Shop and Establishment Registration under respective State Shop and Establishment Act and Rules within 30 days of registration.

This is a state specific mandatory registration for all the business and establishments. The Company has to obtain the Shop and Establishment Registration in every state wherever they have offices and establishments.

  • Professional Tax Registration – Employer & Employee: Every Company is required to obtain Professional Tax – Employer Registration (Enrolment Certificate) within 30 days of incorporation. This again is a state specific labor registration mandatory for all registered business whether you have any employees or not. This registration is subject to renewal every year after payment of prescribed fee. Delay in obtaining the registration will attract penalty to business on yearly basis. Every company who employs people with more than the specified limit of salary (this limit varies from State to State) has to obtain Professional Tax – Employee Registration (Registration Certificate), when they start employing people. For this purpose, the partners / Directors shall be treated as employees if they are drawing salary beyond the specified limits. Also, the employer must deduct the Professional Tax from the salary of employee and pay to the State Govt. on monthly basis.


  • Goods and Services Tax (GST) Registration: Every business with annual turnover exceeds Rs. 40 lakhs (Service providers 20 lakhs) is required to GST Registration under Goods and Services Tax (GST) Act and Rules. It is not mandatory to obtain GST immediately after incorporation of the Company. The Company can obtain this registration as and when required. In case the company has to produce its GSTIN to any third parties or authorities for its business, the company may has to obtain the GST Registration immediately after registration of Company.


  • Trademark Registration: Registering a Company or LLP with a name does not provide complete protection to the name or brand name. The protection of Company /LLP name under the Companies Act / LLP Act is limited to the extent that another Company or LLP will not be registered with the same or a closely-resembling name. Ultimate protection for a business name is secured only by Trademark Registration.


Now let’s see compliances under master directions issued by RBI for the FDI and the compliances under FEMA

  • FCGPR: FCGPR stands for the Foreign Collaboration general permission route. RBI has specified form FCGPR for making reporting of FDI. Whenever a company issues equity shares, Compulsory Convertible Preference Shares (CCPS), Compulsory Convertible Debentures (CCD) in consideration of money received from a person resident outside India by way of FDI then the company needs to file form FCGPR using FIRMS portal.


Time limit for filing FCGPR:

  • Within 30 days of receipt of share application money ARF to be filed.
  • Within 180 days of receipt allotment to be done
  • Within 30 days of Allotment FCGPR to be filed.


  • External Commercial Borrowings: ECB are loan made by non-resident lenders in convertible foreign exchange to the Indian borrowers. ECBs are the instruments through which loans are availed by India borrowers from foreign sources. ECBs include bank loans, buyer’s credit, supplier’s credit, securitized instruments, such as floating rate notes, fixed rate bonds, etc. Indian corporate are permitted to use ECB either for fresh investments or capacity expansion. The funding raised can’t be used for the following purpose:
  • Real estate activities
  • Investment in capital market
  • Equity investment.
  • Working capital purposes except from foreign equity holder.
  • General corporate purposes except from foreign equity holder.
  • Repayment of Rupee loans except from foreign equity holder
  • On-lending to entities for the above activities.


External Commercial Borrowings can be availed through:


  • Automatic Route- Through Authorized Dealers, AD Category -I banks;
  • Approval Route- Perspective borrower should send its proposal for ECB to RBI through AD-Category-I bank for examination.


ECB Return: Monthly Form ECB 2 along with certificate of CA should be filed within a period of 7 days from the close of the month to which it relates.


  • FCTRS: The literal meaning of Form FC-TRS is Foreign Currency Transfer of Shares. This form is filed in case of transfer of shares of an Indian Company from a resident to a Non-Resident/Non-Resident Indian and vice versa through its authorized dealer bank (AD Category-1 Bank)


Time Limit for filing: Reporting of transfer of shares between residents and non-residents and vice- versa is to be made in Form FC-TRS. The Form FC-TRS should be submitted to the AD Category – I bank, within 60 days from the date of receipt of the amount of consideration. The onus of submission of the Form FC-TRS within the given timeframe would be on the transferor / transferee, resident in India.














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