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7/28/2019 An Overview of Doing Business in India - Nov 2010
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LawQuest 2010. All Rights are Reserved. 1An Overview on Doing Business in India
An Overview onDoing Business in Indiaby Poorvi Chothani, Esq.
LawQuestwww.lawquestinternational.com
November 22, 2010
http://www.lawquestinternational.com/http://www.lawquestinternational.com/7/28/2019 An Overview of Doing Business in India - Nov 2010
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LawQuest 2010. All Rights are Reserved. 2An Overview on Doing Business in India
Investment Scenario for FDI Inflows into India
FDI equity inflows in April 2010 - US$ 2,214 million;
The cumulative amount of FDI equity inflows from August 1991 to April 2010stood at US$ 134,642 million
Financial and non-financial 21% of the total FDI with FDI worth US$ 4.4 billionduring April-March 2009-10
Construction activities US$ 2.9 billion
Housing and realestate FDI worth US$ 2.8 billion
Telecommunications US$ 2.5 billion during the financial year 2009-10 The automobile industry US$ 1.2 billion
Power US$ 1.4 billion during April-March 2009-10
FDI inflows during the financial year 2009-10 according to data released by DIPP:
Mauritius US$ 10.4 billion comprising 43 per cent of the total FDI equity
inflows into the country.Singapore US$ 2.4 billion
The United States US$ 2 billion
Source : India Brand Equity Foundation www.ibef.com
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LawQuest 2010. All Rights are Reserved. 3An Overview on Doing Business in India
Investment Scenario for FDI Inflows into India
Investments in India in April 2010 (data released by DIPP ) in US$ from:Mauritius US$ 568 million
Singapore US$ 434 million
Japan US$ 327 million according to latest
In May 2010, 24 foreign investment proposals, worth US$ 304.7 million.These include:Asianet's US$ 91.7 million investment non-news and current affairs televisionchannels.
Rupert Murdoch-controlled Star India holdings' investment of US$ 70 million inTata Sky.
AIP Power investment of US$ 24.4 million in joint ventures.
Source : India Brand Equity Foundationwww.ibef.org
http://www.ibef.org/http://www.ibef.org/7/28/2019 An Overview of Doing Business in India - Nov 2010
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LawQuest 2010. All Rights are Reserved. 4An Overview on Doing Business in India
ForeignInvestmentsinIndia
FOREIGN
INVESTMENTS
Foreign Venture Capital
Investments
Government
Route
Automatic
Route
Foreign Portfolio
Investments
Foreign Direct
Investments
Other Investments
(G-Sec, NCDs, etc)
Investments on
Repatriable /Non-Repatriable basis
VCF,
IVCUs
SEBI regd.
FVCIs
NRIs,
PIO
FIIs
SEBI regd.
Persons Resident
Outside India
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LawQuest 2010. All Rights are Reserved. 5An Overview on Doing Business in India
Entry Options
Direct Investments;
Indirect Investments;
Liaison Office/Representative Office;
Branch Office;
Project Office; Company;
Agent;
Distributor;
Franchise;
Acquisition of Shares under Scheme of Merger/Demerger/Amalgamation
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LawQuest 2010. All Rights are Reserved. 6An Overview on Doing Business in India
Types of Investors
A Non-Resident Individual resident outside India who is a citizen of Indiaor is a person of Indian origin;
Foreign Institutional Investor;
Foreign Venture Capital Investor;
An Individual;
A Hindu Undivided Family; A Company;
A Firm;
An Association of Persons or a Body of Individuals whether incorporatedor not;
Every artificial juridical person, not falling within any of the preceding sub-clauses, and
Any agency, office, or branch owned or controlled by such person.
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LawQuest 2010. All Rights are Reserved. 7An Overview on Doing Business in India
Types of Instruments
Indian Companies can issue: Equity shares;
Fully, compulsorily & mandatorily convertible Debentures;
Fully, compulsorily & mandatorily convertible Preference shares;
ADRs / GDRs; FCCBs.
Preference Shares/Debentures i.e. Non-convertible, optionally convertible orpartially convertible for issue of which funds have been received on or after May 1,
2007 are treated as Debt. OCBs are derecognised as class of investors w.e.f. September 16, 2003 but can
invest with prior approval of RBI through Government Route. Bonus/Rights sharescan be issued without RBI approval but in accordance with Companies Act,1956/SEBI(ICDR) Regulations, 2009, etc.
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LawQuest 2010. All Rights are Reserved. 8An Overview on Doing Business in India
Permitted Entities for Foreign Direct Investment
Indian Company;
Partnership Firm only permitted for NRIs and PIOssubject to certain limitations;
Proprietary concern only permitted for NRIs andPIOs subject to certain limitations;
Trusts other than VCF are not permitted
DIPP has released a Discussion Paper considering FDI in LimitedLiability Partnership Firms
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LawQuest 2010. All Rights are Reserved. 9An Overview on Doing Business in India
Company Structure in India
Private Limited Company Minimum 2 shareholders and 2 directors
Minimum Capital US$ 2500
Public Company
Minimum 7 members and 3 directors
Minimum Capital US$ 12500
Indian director and shareholder not mandatory
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LawQuest 2010. All Rights are Reserved. 10An Overview on Doing Business in India
Foreign Direct Investments
INVESTING
IN INDIA
Government
Route
Automatic
Route
General Rule
Inform RBI within 30 days from the date of
Receipt of Funds / Issue of shares
Pricing: FEMA Regulations Unlisted Discounted free Cash Flow
Valuation
Listed SEBI Guidelines
By Exception
Approval of Foreign Investment
Promotion Board is required
(Decision generally within 4-6 weeks)
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LawQuest 2010. All Rights are Reserved. 11An Overview on Doing Business in India
The Entry Process: Automatic Route
All items/activities for FDI investment up to 100% fall under theAutomatic Route except:
In Industrial and/or Banking ventures.
Where a foreign collaborator has a previous venture or
tie up in India. Where an Indian company already has foreign investors.
All proposals relating to acquisition of existing shares in anexisting Indian Company by a foreign investor.
Where sectoral policy or caps apply Where it is prohibited (list provided later in the
presentation)
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The Entry Process: Government Route
FIPB Approval / Ministry of F inance or SIA / DIPP
For all activities, which are not covered under the Automatic
Route and have investment exceeding sectoral caps;
E.g.: Defence, Mining, Air Transport, Broadcasting, Infrastructure, Petroleum, Telecom
Composite approvals involving foreign investment / foreign
technical collaboration;
Downstream Investment.
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LawQuest 2010. All Rights are Reserved. 13An Overview on Doing Business in India
Prohibition on Investment in India
Retail Trading (except single brand product retailing);
Lottery Business including Government /private lottery, online lotteries, etc.;
Gambling and Betting including casinos etc.;
Business of chit fund;
Nidhi Company;
Trading in Transferable Development Rights (TDRs); Real Estate Business or Construction of Farm Houses;
Manufacturing of Cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobaccosubstitutes;
Activities / sectors not opened to private sector investment including Atomic Energyand Railway Transport (other than Mass Rapid Transport Systems).
Besides foreign investment in any form, foreign technology collaboration in anyform including licensing for franchise, trademark, brand name, managementcontract is also completely prohibited for the Lottery Business and Gambling andBetting activities.
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LawQuest 2010. All Rights are Reserved. 14An Overview on Doing Business in India
Issue and Transfer of Shares
Capital instruments be issued within 180 days from
date of receipt of inward remittance.
If shares are not issued as required, funds to berefunded immediately.
Shares may be freely transferred subject to sectoralcaps and prior RBI permission wherever applicable
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LawQuest 2010. All Rights are Reserved. 15An Overview on Doing Business in India
Prior Permission of RBI Required for the
Following TransfersSale of shares from Residents to Non-Residents:
Company engaged in Financial Services Sector;
Transactions attracting provisions of SEBI (Substantial
Acquisition of Shares & Takeovers) Regulations, 1997;
Activity outside Automatic Route;
Transfer at a price falling outside the pricing guidelines
specified by RBI;
Non-Resident acquirer proposes deferment of payment of
amount of consideration.
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LawQuest 2010. All Rights are Reserved. 16An Overview on Doing Business in India
Investments Exempt from Government Approval
Investments to be made by a Venture Capital Fund registered with theSecurities and Exchange Board of India (SEBI); or
Investments by Multinational Financial Institutions like AsianDevelopment Bank (ADB), International Finance Corporation (IFC),Commonwealth Finance Corporation (CDC), Deutsche Entwicklungs
Gescelschaft (DEG) etc.; or
Where the existing joint venture, investment by either of the parties is lessthan 3 per cent; or
Where the existing joint venture / collaboration is defunct or sick; or
For issue of shares of an Indian company engaged in InformationTechnology sector or in the mining sector, if the existing joint venture ortechnology transfer/trade mark agreement of the person to whom the sharesare to be issued are also in the Information Technology sector or in themining sector forsame area/mineral.
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LawQuest 2010. All Rights are Reserved. 17An Overview on Doing Business in India
Foreign Institutional InvestorThe following institution (artificial juridical person) established or incorporated
outside India, may be Registered as a FII under the SEBI (FII) Regulations, 1995:
(i) a pension fund, mutual fund, investment trust, insurance company, reinsurance
company;
(ii) an International or Multilateral Organisation or an agency thereof;
(iii)a Foreign Governmental Agency, Sovereign Wealth Fund or a Foreign CentralBank;
(iv)an asset management company, investment manager or advisor, bank or
institutional portfolio manager, established or incorporated outside India and
proposing to make investments in India on behalf of broad based funds and its
proprietary funds, if any;
(v) a trustee of a trust established outside India and proposing to make investments
in India on behalf of broad based funds (atleast 20 investors/holds >49% of
shares or units in the fund) and its proprietary funds, if any;
(vi)university fund, endowments, foundations or charitable trusts or charitable
societies.
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LawQuest 2010. All Rights are Reserved. 18An Overview on Doing Business in India
Foreign Venture Capital Investments
Investor established or incorporated outside India,proposes tomake investment in India and Registered under the SEBI(FVCI) Regulations, 2000.
Only Registered FII/NRI as per Schedule II and III of FEM(Transfer or Issue of Security by a Person Resident OutsideIndia) Regulations, 2000 can invest/trade in Capital of IndianCompanies in the Indian Stock Exchanges directly i.e. through
brokers, like a Person Resident in India.
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Venture Capital Fund
VCF means a Fund:
established in the form of a Trust, a company including a body
corporate and registered under Securities and Exchange Boardof India (Venture Capital Fund) Regulations, 1996, which
(i) has a dedicated pool of capital;
(ii) raised in the manner specified under the Regulations; and
(iii) invests in accordance with the Regulations
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Indian Venture Capital Undertaking
IVCU means an Indian Company:
whose shares are not listed in a recognised Stock Exchange in India;
which is engaged in the business of providing services, production
or manufacture of articles or things, but does not include such
activities or sectors which are specified in the negative list by the
SEBI, with approval of Central Government, by notification in the
Official Gazette in this behalf.
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Foreign Portfolio Investments
FVCI may
contribute up to 100% of the capital of a VCF/IVCU
set up a domestic asset management company to manage the fund such investments are allowed under the automatic route subject to SEBI &
RBI regulations and FDI Policy.
allowed to invest as non-resident entities in other companies subject to FDIPolicy.
FII/sub-accounts may invest in the Capital of the Indian Companyeither under the FDI Scheme/Policy or the Portfolio Investment
Scheme with a 10% individual limit and 24% aggregate limit. Allowed to trade in all exchange traded derivative contracts approved by RBI/SEBI
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LawQuest 2010. All Rights are Reserved. 22An Overview on Doing Business in India
Non Resident Indian (NRI)
is an Indian citizen who has migrated to another
country,
is a person of Indian origin who is born outside India, or
is a person of Indian origin who resides permanentlyoutside India.
Other terms with the same meaning are overseas Indian
and expatriate Indian. In common usage, this oftenincludes Indian-born individuals (and also people of other
nations with Indian ancestry) who have taken the
citizenship of other countries.
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LawQuest 2010. All Rights are Reserved. 23An Overview on Doing Business in India
Investments by NRIs
Invest in shares of listed companies under PIS on repatriationand non-repatriation upto 5% of paid-up capital and aggregateof all NRIs cannot exceed 10% but can be increased to 24%with special permission in the company.
Short selling is not permitted and has to take delivery ofshares.
Payments from NRE/FCNR(B) account if purchase of sharesand/or debentures on repatriation basis.
Payments from NRO account if purchase of shares and/ordebentures on non-repatriation basis.
Allowed to invest in Exchange Traded Derivative Contracts.
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Critical Issues in Foreign Investments
Shareholders Agreements
Liability of Board of Directors
Employment Laws Disputes Resolution
IP Protection
Tax
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Persons of Indian Origin (PIO)
Persons of Indian Origin (up to the fourth generation) qualify for PIORegistration
Visa free entry and the right to residence and employment
Registration card is valid for fifteen years
Renewed for additional 15-year periods
Eligible spouse of an Indian national or person of Indian origin mayalso qualify for a PIO card.
FRRO registration required in some cases
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Overseas Citizenship of India (OCI)
Eligibility - an individual* who was eligible to become a citizen of India on 26.01.1950; or
was a citizen of India on or at any time after 26.01.1950; or
belonged to a territory that became part of India after 15.08.1947;or
is a child or grand child of a person described above.
Life time validity
Permits one to live and work in India
No travel restrictions
No FRRO registration required
* Individuals who have ever been citizens of Pakistan or Bangladesh are not
eligible for OCI.
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LawQuests Areas of Practice
Global Business Migration
Employment Law
Foreign Direct Investment
Foreign Indirect Investment
Company and Commercial
Transactions
Real Estate Private Clients
Intellectual Property
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LawQuest 2010. All Rights are Reserved. 28An Overview on Doing Business in India
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