Guide to NRI Share Transfer and Purchase

Non-Resident Indians (NRI), Foreign Nationals and Persons of Indian Origin (PIO) are allowed to invest only in the shares of a Private Limited Company or Limited Company under the automatic route. NRI's or Foreign Nationals or PIOs who wish to invest in an LLP or register an LLP must first obtain RBI's prior approval. NRI investment in One Person Company is not allowed. Therefore, a private limited company is a popular mode for NRI or foreign investment in Indian businesses. In this article, we look at the regulation for NRI share transfer and purchase.

Definition of NRI

FEMA Act, 1999 has classified two types of NRIs, Non-Resident Indian holding Indian Passport (NRI) and Persons of Indian Origin (PIO) - Non-Resident Indians holding a foreign passport. Further, for FEMA regulations we have to determine whether the person is a person resident in India or person resident outside India.

Person Resident in India: A "Person Resident in India" means a person residing in India for more than one hundred and eighty-two days during the course of the preceding financial year but does not include:

A person who has gone out of India or who stays outside India for (The following persons are not considered Person Resident in India, even if they are residing for more than 182 days during the course of the preceding financial year)
- Taking up employment outside India
- Carrying on outside India a business or vocation outside India
- Any other purpose, in such circumstances, as would indicate his intention to stay outside India for an uncertain period.
A person who has come to stay in India for (The following persons are considered Person Resident in India, even if they have not resided in India for more than 182 days during the course of the preceding financial year)
- Taking up employment in India
- Carrying on outside India a business or vocation in India
- Any other purpose, in such circumstances, as would indicate his intention to stay in India for an uncertain period.

Any person who is NOT a person Resident in India is considered to be a Non-Resident Indian.

Purchase of Shares by NRI or Person Resident outside India

A person resident outside India may purchase equity or preference shares or convertible debentures offered on right basis by an Indian Company (Private Limited Company or Limited Company), which satisfies the following conditions:

The purchase of shares does not result in an increase in the percentage of foreign equity already approved, or permissible under the Foreign Direct Investment Scheme.
The existing non-resident shareholder's additional purchase of shares does not exceed the sectoral cap of FDI for the entity.
The purchase of shares was from a person already resident outside of India.
The purchase of shares by the person resident outside India is not less than that the price at which the offer is made to resident shareholders.

Transfer of Shares by NRIs or Person Resident outside India

NRI Share Transfer Guide

Transfer of shares by NRI to Indian Resident by way of gift

Reserve Bank of India has given general permission to a person resident outside India to transfer the shares by way of gift to an Indian Resident.

Transfer of shares by NRI to person Resident in India

In case the shares of a Private Limited Company are being transferred by a person resident outside India to a person resident in India, then the NRI or Person Resident outside India must obtain the prior permission of Reserve Bank of India.

Transfer of shares by an NRI to another NRI

Reserve Bank of India has given general permission to an NRI to transfer by way of sales the shares of a Company to another NRI/PIO.

For more information about a Private Limited Company or Share Transfer, visit IndiaFilings.com

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Frequently Asked Questions

Common questions about NRI Share Transfer and Purchase Regulations in India.

According to the article, under the FEMA Act, 1999, a Non-Resident Indian (NRI) is classified into two categories: Non-Resident Indian holding an Indian Passport (NRI), and Persons of Indian Origin (PIO) - Non-Resident Indians holding a foreign passport. The article also defines the criteria for determining whether a person is considered a 'Person Resident in India' or a 'Person Resident outside India' for FEMA regulations.

Yes, a person resident outside India may purchase equity or preference shares or convertible debentures offered on a rights basis by an Indian Company (Private Limited Company or Limited Company), provided certain conditions are met. These conditions include: the purchase does not result in an increase in the existing foreign equity beyond approved or permissible limits, the purchase is within the sectoral cap of FDI for the entity, the purchase is from a person already resident outside of India, and the purchase price is not less than the offer price to resident shareholders.

The article states that the Reserve Bank of India has given general permission for a person resident outside India to transfer shares by way of gift to an Indian Resident. However, if the shares of a Private Limited Company are being transferred by a person resident outside India to a person resident in India, then the NRI or Person Resident outside India must obtain prior permission from the Reserve Bank of India.

Yes, the Reserve Bank of India has given general permission to an NRI to transfer shares of a Company by way of sale to another NRI or PIO (Person of Indian Origin).

No, according to the article, NRI investment in One Person Companies is not allowed.

The article mentions that a private limited company is a popular mode for NRI or foreign investment in Indian businesses.

NRIs, Foreign Nationals, or PIOs who wish to invest in an LLP (Limited Liability Partnership) or register an LLP in India must first obtain prior approval from the Reserve Bank of India (RBI).

The two main categories of NRIs defined by FEMA (Foreign Exchange Management Act, 1999) are: 1) Non-Resident Indian holding an Indian Passport (NRI), and 2) Persons of Indian Origin (PIO) - Non-Resident Indians holding a foreign passport.

When an existing non-resident shareholder purchases additional shares, the purchase should not exceed the sectoral cap of FDI (Foreign Direct Investment) for the entity or company in which they are investing.

No, prior RBI approval is not required for NRIs, Foreign Nationals, or PIOs to invest in the shares of a Private Limited Company or Limited Company under the automatic route, as long as the investment conditions mentioned in the article are met.