Thursday, June 30, 2011

ISSUE OF EQUITY / PREFERENCE SHARES UNDER GOVERNMENT ROUTE OF FDI AGAINST Pre-operative/pre-incorporation expenses (including payments of rent, etc.)

ISSUE OF EQUITY / PREFERENCE SHARES UNDER GOVERNMENT ROUTE OF FDI AGAINST
Pre-operative/pre-incorporation expenses (including payments of rent, etc.)

As per Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000, notified vide Notification No. FEMA 20/2000-RB dated May 3, 2000, as amended from time to time.,

The extant guidelines for issue of equity shares/ preference shares under the Government route have been reviewed in consultation with the Government of India and, accordingly, it has been decided to permit issue of equity shares / preference shares under the Government route of the FDI scheme for the following categories of transactions:

Pre-operative/pre-incorporation expenses (including payments of rent, etc.) subject to compliance with the following conditions:

  1. Submission of FIRC for remittance of funds by the overseas promoters for the expenditure incurred;

  2. Verification and certification of the pre-incorporation/ pre-operative expenses by the statutory auditor; 

  3. Payments should be made directly by the foreign investor to the company. Payments made through third parties citing the absence of a bank account or similar such reasons will not be eligible for issuance of shares towards FDI; and 

  4. The capitalization should be completed within the stipulated period of 180 days permitted for retention of advance against equity under the extant FDI policy.

    Ref - 
    A. P. (DIR Series) Circular No.74 dated 30 June 2011

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