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Partnership Firm

Partnership Deed With NRI

It is possible for an NRI to join a partnership in India and contribute to the firm's capital, provided that certain conditions are met. Get the crucial information about an NRI Partnership Deed.

Table of Contents

A non-resident Indian (NRI) can become a partner in an Indian partnership firm, and under certain circumstances, he also can contribute to the firm’s capital. There are no limitations on who can become an NRI partner with a partnership deed with NRI. However, the law limits the amount of capital that an NRI can bring in from outside the country to invest in a firm. Here lets have a look at repatriation basis meaning and partnership deed with NRI.

It’s easier to do business in India than in many other places due to the regulations that stimulate investment, cheaper wages, and a wide range of other indicators. Many investors are baffled by the complexity of laws regulating commercial transactions, ranging from a single proprietorship to a limited liability partnership.

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What Is Partnership Deed with NRI ?

‘The Government of India (Allocation of Business) Amendments of 1961’,  which were made public on 15 February 2016 by a Gazette Notification, states’

The Ministry of Commerce and Industry’s Department of Industrial Policy and Promotion (DIPP) will be responsible for the following activities:

  • International and non-resident investment projects of all kinds.
  • Government strategies, including creative investments and policy efforts, aligned with the general Government goals, particularly in areas like Overseas Indian special economic zones (SEEZ).

As a result, following the merger of the Ministry of Overseas Indian Affairs with the Ministry of External Affairs, operations aimed at promoting and facilitating investment will no longer fall under the purview of the OIFC.

Aside from the Government Approval Method, where FDI is permitted at 100%, NRIs can participate in Limited Liability Partnerships (LLPs) via automatic route as stated by the NRI partnership deed. Along with that, Foreign-invested limited liability companies (LLCs) will not be permitted to engage in agricultural or plantation activities, print media or real estate businesses.

NRIs and PIOs (Persons of Indian Origin Resident Outside India) have the permission to invest in the capital of Partnership Firms and Sole Proprietorship Companies alike. Still, the most important benefit for them is that they cannot repatriate the money back abroad, i.e. they can invest based on non-repatriation, even if some conditions are met.

To be eligible for this programme, the investments must not have been made in the agricultural/plantation/real estate/print media sectors. NRE/FCNR and NRO account remittances can be used to invest in the stock market.

Investment funds are not transferable outside of India. NRIs and PIOs may make investments in sole proprietorship and partnership firms with the option of repatriation and return to their home countries after obtaining prior approval from the Reserve Bank. The Government of India will decide the outcome of the application as stated by the partnership deed with NRI.

In What Ways Can a Partnership Deed With a NRI Occur?

There are two routes that a non-resident Indian (NRI) can take to invest in a partnership firm. Both of these options are broken down detail below:

The non-resident Indian (NRI) may invest in the partnership firm on a non-repatriation basis, which means that the capital invested once cannot be taken back by the NRI to any country outside India. However, this is subject to the following conditions:

  • The sum must be invested through inward remittance or by withdrawing it from an NRE/FCNR/NRO account
  • There is no involvement in the agricultural or plantation business, the real estate market, or the print media industry on the part of the company’s business or proprietary concern.

Investments Made Based on Repatriation

If the NRI intends to make any investments based on repatriation, then he must first obtain the government’s prior approval before making any investments.

A non-repatriable basis applies to investments made in a company by NRIs. In an investment not based on repatriation meaning, non-resident Indian (NRI) investors are not permitted to take the profits of the business outside of the country. The non-resident ordinary bank account in India (also known as an NRO bank account) should be used to invest in India.

Companies Involving Partnerships Deed with NRI

The ease with which partnership firms can be established has contributed to their widespread adoption across India. It is appropriate for a gathering of individuals planning a small or medium-scale business. These types of businesses are governed by the Indian Partnership Act of 1932.  However, the only people who can form partnership firms in India are non-resident Indians and overseas citizens. At least one resident Indian partner is required for a non-resident Indian partnership firm.

Types of NRI Partnership Firms

Non-registered and registered NRI partnership firms are the two different types of NRI partnership firms.

Non-Registered Partnership Firm 

There is no requirement in the Partnership Deed that a partnership business must be registered. However, unregistered partnership firms are unable to utilise a variety of legal protest mechanisms due to a law governing partnerships, including restrictions such as:

  • It cannot take legal action in a court of law to enforce claims against a third party
  • It cannot bring legal action against any of its partners
  • It prevents partners from taking legal action against the company to enforce a right they have against it
  • It eliminates the possibility of partners within the firm bringing legal action against one another
  • It prevents the courts from considering any claim adjustment greater than one hundred yen. Due to these various legal obstacles, it is wise to register a partnership business.

Registered Partnership Firm

Two primary varieties of registered partnership firms are common in India. The first is a typical partnership, and the second is a limited liability partnership (LLP). Under the Partnership Act, businesses are required to register with the Registrar of Firms; however, under the Limited Liability Partnership Act, 2008, a limited liability partnership (LLP) must register with the Registrar of Companies.

The Registrar of Firms has the ordinary partnerships registered (RoF) on record. The procedure can be completed online in most of India’s states. Please go to the website of the Department of Industry in the state in which you intend to establish your company.

To comply with income tax regulations, you must obtain a Permanent Account Number (PAN) and a Tax Deduction / Collection Account Number (TAN). If you will be signing the documents outside of India, you are required to apostille and notarize all of the documents.

Final Word

As a result of its business-friendly legislation and cheaper wages, India has become a popular location for investors. Many investors are baffled by the plethora of business laws, which range from a single proprietorship to a Limited Liability Partnership. In what industry will the proposed collaboration take place? On a non-repatriation basis meaning, of course. RBI compliances also need attention when money is brought into a company. Be sure to consult with an attorney or me before moving forward with an NRI partnership. If you need further assistance in this regard, feel free to contact us at Vakilsearch.

Frequently Asked Questions

Can a Non-Resident Indian (NRI) be a partner in an Indian partnership firm, and what are the legal provisions governing this?

Yes, an NRI can be a partner in an Indian partnership firm. Legal provisions, including the Foreign Exchange Management Act (FEMA), regulate the involvement of NRIs in partnerships.

What specific details and clauses should be included in a Partnership Deed involving an NRI partner?

The Partnership Deed should specify the NRI partner's contribution, profit-sharing ratios, dispute resolution mechanisms, and compliance with FEMA regulations.

Are there any restrictions or approvals required when forming a partnership with an NRI, and how is it different from partnerships with Indian residents?

While no specific approvals are needed, FEMA regulations must be adhered to. Partnership with an NRI differs in terms of contribution, taxation, and FEMA compliance.

How does the NRI partner contribute to the capital of the partnership, and what currency is typically used for such contributions?

The NRI partner can contribute to capital through inward remittances or NRE/NRO accounts. Contributions are typically made in foreign currency.

What are the tax implications for both the NRI partner and the Indian partners in a partnership with an NRI?

Tax implications involve considerations such as withholding tax on NRI's share of profits. Indian partners may need to comply with Double Taxation Avoidance Agreements.

Is there a requirement for an NRI partner to have a local representative or power of attorney holder in India for partnership matters?

While not mandatory, having a local representative or power of attorney holder in India can facilitate smoother partnership operations for the NRI.

What happens in the case of a dispute between the partners, especially when one partner is an NRI?

Dispute resolution mechanisms should be clearly outlined in the Partnership Deed, specifying arbitration or legal recourse to address conflicts, ensuring fairness for all partners.

How are profits and losses distributed among partners, including the NRI partner, and how is this reflected in the Partnership Deed?

Profit-sharing ratios should be explicitly mentioned in the Partnership Deed, outlining how profits and losses will be distributed among partners, including the NRI partner.

Can an NRI partner actively participate in the day-to-day operations of the partnership, and are there any legal considerations?

Yes, an NRI partner can actively participate, but legal considerations like FEMA guidelines should be followed to ensure compliance with foreign exchange regulations.

What steps should be taken to ensure compliance with foreign exchange regulations and other legal requirements when drafting a Partnership Deed with an NRI partner?

To ensure compliance, the Partnership Deed should adhere to FEMA guidelines, specify the mode of contribution, and outline procedures for repatriation of funds, facilitating a legally sound partnership.

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