3 Jun 2021, 13:50 — 5 min read
When it comes to Indian resident entrepreneurs who wants to start a business in India, they have lots of options and they can choose any of those by filtering through their needs, as it does not have many complications such FDI, Profit repatriation, etc.
However, when it comes to NRI (Non-Resident Indian) entrepreneurs who wants to start a business in India, selecting the type of entity gets complicated due to Foreign Direct Investment policies, Profit repatriation, and double taxation issues. Here in this article, we will help you understand why private limited company is the best suited entity for NRI entrepreneurs?
Let’s understand the requirements and benefits of starting Private Limited Company by an NRI Entrepreneurs
• Directors: Minimum two Directors required (Max 15) of which one must be a resident Indian.
• Shareholders: Minimum two shareholders are required (Director & Shareholders can be the same personals)
• Registered address: One address is required which will act as a registered address of the company (Residential address will work)
• Capital investment: No Limit
• Ownership: Private Limited Company clearly defines the Owners and Directors (management) of the company. which helps in offering equity shares to new shareholders.
• Foreign Direct Investment: Accepting Foreign Direct Investment (FDI) is quite easy, as compared to other type of entities. Because in most of the sectors for Private Limited Company FDI is allowed through Automatic route. Which is not the case in other entities.
• Share Transfer: Transfer ownership from one shareholder to another shareholder is quite easy and fast process in private limited company as compared to the other entities.
• Fund Raising: Venture capital, Equity fund and raising funds from the banks is easier in Private Limited company as compared to other entities.
• Number of Directors and Shareholders: In Private Limited Company only 2 shareholders and directors are required but in case of public limited companies minimum 7 directors are required.
• ESOP: Private limited company offers an Employee Stock Option Plan (ESOP), from which a company can offer shares to its loyal employees at a fixed subscription price over a period of time.
• Compliance: Compliances for Private Limited Companies are high as compared to other entities, but that helps in recognising it. Private Limited Company is the most recognized type of entity in India.
All the above benefits of Private Limited Company make it best suited entity for NRI entrepreneurs. However, when it comes to taxation, Private Limited Company does not enjoy the best as compared to other entity types.
Taxation: Other entity types are subject to tax of 30% and Private Limited Company is subject to tax of 25% but any share of profit by the shareholders (Dividend) is taxable in the hands of individual shareholders depending on their slabs.
NRI Investment: Any NRI who wants to start a business in India, his investment will be considered as Foreign Direct Investment and FDI is subject to RBI compliances. And this investment becomes repatriable investment. Means all the profits gained from this investment the NRI can take it outside of India.
However, if an NRI want to invest in a business as a resident Indian. Then he can do that without subject to RBI Compliances, but the profit gained from that investment cannot be taken outside India.
Based on the above information, Private Limited Is the best suited entity for NRI entrepreneurs who wants to start a business in India. It has more benefits than disadvantages.
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Posted byParth Mishra
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