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Investing in Private Limited Companies

If you’re an investor, private limited companies are an important part of your investment portfolio. You may own shares in a public company that is listed on the stock exchange and trading under its name or trade stock in a private company that trades under the same name but is not publicly traded. But how do you invest in private companies? What are the advantages of investing in such companies? How do you buy shares at all costs?

Investing in Private Limited Companies

You can invest in private limited companies in India through NRI Investment. The first step is to buy shares and debentures of the company, which will be done by subscribing to the issue under Regulation 3(11) of SEBI (Securities and Exchange Board of India) Notification No. SEBI/CMP/IN/2009-40 dated 27th November 2009.

If you are not an Indian national but have made your permanent residence outside India for at least six months before investing, then you can apply with either your original passport or another valid document approved by the Ministry of External Affairs, Government of India along with other relevant documents such as PAN card, as required by SEBI Circular No CMP-II-2007-17 dated 27th August 2007 read with Rule 6(1)(a) & (b), Rules 2(2) & 6(2)(a).

Private Limited Companies

A private limited company is a company whose shares are only available to natural persons and other legal entities, as opposed to public companies which have shares available to anyone. There are two main types of private limited companies: one in which the shareholders can only be individuals (natural persons) and the other that allows for corporations or other legal entities to participate.

  • Public Limited Company (PLC)- The PLC structure allows any number of shareholders who do not need to be natural persons; however, they must all hold at least one share each to become members of the board of directors. The PLC also has no limit on how many members there may be per class/group but members must meet certain minimum requirements such as being over 18 years old or possessing skills necessary for running company operations such as finance management, if you don’t fall into these categories then you may not be able to get onto boards without meeting extra criteria first. 

There are many benefits to choosing a PLC over a private limited company.

  • Public companies have more freedom when it comes to raising capital and growing their business as they can issue shares on the stock market. As some may know, a private company cannot issue shares until it has reached its fifth anniversary of incorporation; however, this restriction does not apply to PLCs so they can start selling shares sooner.

Can NRIs Invest in Private Limited Companies in India?

NRIs can invest in private limited companies through a Resident Indian. A resident Indian is a person who has lived in India for at least 75 days within the last 12 months or such other period as may be prescribed by any law for the time being in force.

NRIs can also invest through a Company Secretary and Registered Agent. These two types of agents are important because they help your company register with the Registrar of Companies (ROC). ROC registration is mandatory to begin trading as a private limited company, so you will need an agent if you want to start investing in PLCs from abroad

How can NRIs Invest in India Private Limited Companies?

NRIs can invest in Indian private limited companies by buying shares or debentures of them. They can also invest in the registration of a new business and/or expansion of an existing one.

Investment in the Registration of a New Business

Once you have decided to start a business and have the idea, it’s time to register your company. The process of registering a new business involves several steps:

  • Selecting the proper name for your company- This is done by applying with the Ministry of Corporate Affairs (MCA). The MCA will then issue you a certificate showing that they have received your application and approved its name. You may also choose not to use any specific word or phrase but instead specify “Limited Liability Company” or “Private Limited Company”.
  • Filing documents like Memorandum & Articles of Association along with financial statements prepared by registered auditors or CA companies who have been appointed by them to ensure strict compliance with all legal requirements placed on them by various authorities such as RBI, when applying for registration under Companies Act 1956 after completing all formalities related thereto.”

Buying Shares and Debentures of Private Companies

Buying shares or debentures is a popular way to invest in private companies. If you want to do so, there are several different ways that you can go about it.

  • You can buy shares directly from the company itself; this means that you have bought a stake in their business and will receive dividend payments from them over time (or when they decide they want to pay dividends).
  • You can also buy shares through an investment firm such as Goldman Sachs Asset Management (GSAM), which will then sell those shares on your behalf; however, GSAM charges commission fees for doing so which might be more than what you would make by investing directly with the company itself.

 

By investing money in private limited businesses, you can accomplish your investment goals while keeping them hidden from tax authorities and other parties who might wish to utilize your money for their gain. In India’s private firms, you can invest in a variety of ways. The purchase of shares or debentures is one of the most widely used strategies. Mutual funds are a terrific option for NRIs to participate in the Indian market and gain exposure to it without having to deal with paperwork or regulations.