India received $70 billion in FDI inflow in FY 2023.

Yup, I know that's quite a lot.

There's a simple reason for this actually.

The FDI inflow is constantly rising in India due to development in the ease of doing business here, and some other benefits.

In fact, I have gotten so many requests from foreign investors looking to acquire or invest in Indian businesses.

And that too across different industries.

Now if you're a foreign investor interested in this, there are several ways to establish a presence in India.

You can open a branch office, form a Joint Venture with an Indian company, or set up a wholly-owned subsidiary.

You can even acquire shares in an existing Indian company.

It all depends upon the goal of making direct investments in India.

Here, we'll focus on how a foreign investor can acquire or invest in an existing Indian business.

The overall process for foreign investors is similar to that for domestic investors.

However, there are some additional rules and compliance requirements.

(1) Sectoral Caps and Approval Requirements:

First of all, focus on the sector or industry in which your target company operates.

The Foreign Direct Investment (FDI) Policy in India allows up to 100% foreign investment in only CERTAIN sectors, without government approval.

And in other sectors, you will have to seek government approval even for 1% foreign investment.

And, there are some sectors in which FDI is completely forbidden, such as Lottery Business or Casinos.

So understanding these sectoral caps should be your number 1 step.

(2) Issuance or Acquisition of Shares:

You can acquire shares in a Company in two ways:

(a) Issuance of Fresh Shares:

An Indian company can issue new shares to foreign investors, subject to sectoral caps and allowed instruments.

(b) Acquisition by Transferring Existing Shares:

Foreign investors can purchase shares currently held by resident or non-resident shareholders of the company.

You probably already knew about these two ways. 

But I still covered them just in case!

(3) Different Instruments Available:

Under the current FDI regime, Foreign Investment is allowed in the following ways:

a) Equity Shares

b) Preference Shares (Fully and Compulsorily Convertible)

c) Debentures (Fully and Compulsorily Convertible)

d) Rights Issue

Preference Shares and Debentures must be mandatorily converted into Equity Shares within a specific time frame to comply with FDI policy.

Non-convertible, Optionally Convertible or Partially Convertible instruments are considered debt.

They are covered under the External Commercial Borrowings (ECB) guidelines.

(4) Compliances Involved:

For the issuance of fresh shares, the basic process remains the same as in the case of domestic investors.

Except for the requirement of government approval, where applicable.

Basically, it goes like this:

Step 1) Increasing Authorized Capital

Step 2) Obtaining Board and Shareholder Approvals

Step 3) Receiving Application/Subscription Money

Step 4) Share Allotment

Step 5) Filing the Return of Allotment with the Registrar of Companies (ROC)

Step 6) Issuing Share Certificates

I have covered this in detail in my other post.

And if you don't want to miss similar posts, turn on the notification!

Now, in addition to these rules, you also have to follow the Foreign Exchange Management Act (FEMA) rules.

FEMA Rules require notifying RBI within 30 days of issuing shares to foreign investors.

Or, in the case of share transfers, within 60 days of such transfers to foreign investors.

That's it!

Remember, these points give you a broader idea of foreign investment.

There are many other different ways of making investments in Indian businesses.

And it's definitely trickier when foreign money is involved because of the ever-changing regulations and FDI policies.

The best step you can take here is to hire someone experienced in this market cough my firm cough.

Good luck! :)

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