Allotment of Shares to person resident outside India under Memorandum of Association (MoA) of an Indian company - Pricing guidelines- can be issued at Par value-
Attention of Authorised Dealers Category-I (AD Category - I) banks is invited to the 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 (hereinafter referred to as Notification No. FEMA 20), as amended from time to time.
2. In terms of sub-regulation (1) of Regulation 5 of the Notification ibid, a person resident outside India or an entity incorporated outside India may purchase shares or convertible debentures of an Indian company under Foreign Direct Investment Scheme, subject to compliance with the issue price specified in para 5 of Schedule 1 of the Notification ibid.
3. It has been decided that in cases, where non-residents (including NRIs) make investment in an Indian company in compliance with the provisions of the Companies Act, 1956, by way of subscription to Memorandum of Association, such investments may be made at face value subject to their eligibility to invest under the FDI scheme.
Ref:
RBI/2012-13/223-A.P. (DIR Series) Circular No. 36 dated September 26, 2012
As per the current FDI policy in force, a person resident outside India or an entity incorporated outside India may purchase shares or convertible debentures of an Indian company under Foreign Direct Investment Scheme, subject to compliance with the issue price specified in Para 5 of Schedule 1 of of Schedule 1 of the Notification No. FEMA 20 / 2000-RB dated May 03, 2000 (as amended from time to time).
ReplyDeleteAs per applicable pricing guidelines, the price of shares issued to persons resident outside India under the FDI Policy, shall not be less than the price worked out in accordance with the SEBI guidelines, as applicable, where the shares of the company is listed on any recognized stock exchange in India. Where the shares of the company are not listed on any recognized stock exchange in India, the price of shares shall not be less than the fair valuation of shares done by a SEBI registered Category - I Merchant Banker or a Chartered Accountant as per the discounted free cash flow method.
Accordingly, even for newly incorporated Companies, the valuation reports by Chartered Accountants or Merchant Bankers was required to be submitted to the RBI through Authorized Dealers, adding to the cost of compliance, even through the subscription to the Memorandum of Association is always at the face value of the shares.
It has been now decided that in cases, where non-residents (including NRIs) make investment in an Indian company in compliance with the provisions of the Companies Act, 1956, by way of subscription to Memorandum of Association, such investments may be made at face value subject to their eligibility to invest under the FDI scheme.
The directions contained in this circular are without prejudice to permissions / approvals, if any, required under any other law.
This will now obviate the need of obtaining the valuation reports in cases of allotment of initial shares as subscribers to the Memorandum
Based on this circular as I understand since now that a newly formed company can allot/issue shares to its NRI investors ( who are subscribers to the MOA) at face value. So the very purpose of obtaining a valuation report particularly in case of Private Ltd Company gets defeated and in my opinion is no longer required. Can you please correct me if I am wrong?
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Pooja
All the Forex traders must be aware of the information that has been posted here.
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