Non-Resident Indians and Partnership Firms

Cheerful positive friendly businessmen partners colleagues holding document contract looking at

There is a growing trend among Non-Resident Indians (NRIs) to invest in India. This trend is not limited to real estate and stock markets, but also extends to setting up businesses in the country. Many NRIs are looking to set up partnership firms as a way of making a safe investment and ensuring that their money and resources are properly used. 

In this blog post, we’ll discuss some of the key factors you should consider when setting up a partnership firm as an NRI, such as compliance with tax laws, registration and capital requirements, and more. We’ll also explore why partnering with other NRIs may be beneficial for your business ventures in India.

Starting a Business in India

There are many reasons why India is an attractive destination for starting a business. The country has a large and rapidly growing economy, with strong demand for goods and services. India also offers a well-developed legal and regulatory framework, as well as a large pool of skilled workers.

However, there are some challenges to starting a business in India. The process can be complex and time-consuming, and there may be restrictions on foreign ownership of businesses in certain sectors. It is therefore important to seek professional advice before setting up a business in India.

If you are a non-resident Indian (NRI), you can set up a business in India by incorporation under the Companies Act 2013 or by registering a partnership firm under the Partnership Act 1932. NRIs can also set up branch offices or project offices of their overseas companies in India, subject to certain conditions.

Business Investment in India

Although India has been a traditionally closed economy, the country has seen dramatic changes in recent years, with the government opening up various sectors to foreign investment. As a result, India is now one of the most attractive destinations for business investment.

There are numerous reasons why India is an attractive destination for business investment.

  • First, India has a large and growing market, with a population of over 1 billion people.
  • Second, India’s economy is rapidly expanding, with an annual growth rate of 7% in recent years. This growth is expected to continue in the future, making India an increasingly important player in the global economy. Furthermore, the Indian government has taken steps to make the country more welcoming to foreign investors. For example, the government has introduced a number of reforms to make it easier for businesses to set up and operate in India. 
  • Additionally, the government has also launched initiatives such as Make in India and Digital India, which are designed to attract foreign investment and promote economic growth.
  • Overall, there are many reasons why business investment in India is likely to continue to grow in the future. With its large and growing market, expansive economy, and favorable policies toward foreign investment, India is poised to become an increasingly important destination for businesses looking to expand their operations internationally.

NRI Partnership Firms

A partnership firm is a business entity in which two or more individuals join hands to carry out a business activity. Partnership firms are governed by the Indian Partnership Act, of 1932. An NRI (Non-Resident Indian) can be a partner in an Indian partnership firm.

NRIs can invest in partnership firms in India in two ways:

  1. By contributing to the capital of the firm; or
  2. By providing loans to the firm.

However, there are some restrictions on NRIs investing in partnership firms in India. These restrictions are:

  1. NRIs cannot invest more than 60% of the total capital of the firm; and
  2. The total number of partners in the firm, including NRIs, cannot exceed 20.

Unregistered Partnership Firms

An unregistered partnership firm is a partnership firm that has not been registered under the Partnership Act, of 1932. An unregistered partnership firm is not a legal entity and does not have any legal status. The partners of an unregistered partnership firm are personally liable for all the debts and liabilities of the firm.

Unregistered partnership firms are not allowed to carry on certain types of businesses such as banking, insurance, money-lending, and stock-broking. They are also not allowed to own property in their own name. The partners of an unregistered partnership firm cannot sue each other in a court of law.

The main disadvantage of an unregistered partnership firm is that it does not have any legal status and the partners are personally liable for all the debts and liabilities of the firm.

Registering A Firm

If you are an Indian citizen living outside of India, you can still register a partnership firm in India. The process is relatively simple and can be done entirely online.

First, you will need to have all of the necessary documents in order. This includes the Partnership Agreement, which must be notarized and apostilled. You will also need to have identity proof for all partners, as well as proof of address. Once you have all of the required documents, you can begin the registration process.

  1. The first step is to create an account on the Ministry of Corporate Affairs website. From there, you will need to fill out the online application form and upload all of the required documents. 
  2. Once your application has been processed, you will receive a Certificate of Incorporation. This document is essential for opening a bank account and applying for visas.
  3. After your partnership firm has been registered, you will need to obtain a PAN card for each partner. This can be done by filing an application with the Income Tax Department. 
  4. Once you have obtained PAN cards for all partners, you can then open a bank account in India in the name of your partnership firm

Incorporating A Partnership Firm

A partnership firm is a business entity in which two or more people come together to share the profits and losses of the business. 

ADVANTAGES in Incorporating a partnership firm: 

  • Allows for the sharing of risks and rewards between the partners – This can be a great way to raise capital for your business, as well as to get help with management and decision-making.
  • It can help you to build up a good reputation in the market – If your partners are well-known and respected individuals, this can rub off on your business and make it more credible in the eyes of potential customers and clients.

DISADVANTAGES in Incorporating a partnership firm: 

  • partners may have disagreements about how to run the business, which can lead to conflict and even dissolution of the partnership. It is important to have clear agreements in place from the start so that everyone knows their role and responsibilities within the business.

If you are thinking of incorporating a partnership firm, it is important to seek professional advice so that you can weigh up the pros and cons carefully. With careful planning and execution, a partnership firm can be a great way to grow your business.

Top Indian States For FDI

There is no one-size-fits-all answer to the question of which Indian state is the best for foreign direct investment (FDI). Each state has its own unique strengths and weaknesses, and what may be a good fit for one investor may not be ideal for another. However, there are some states that tend to be more attractive to foreign investors than others.

    • Maharashtra is often seen as the most business-friendly state in India, and it is home to the country’s financial capital, Mumbai. The state has a large and well-educated workforce, and infrastructure development is a top priority.
    • Maharashtra also offers a number of tax and other incentives for businesses.
    • Gujarat is another state that is popular with foreign investors. It has a pro-business environment and a developed infrastructure. The state also offers a number of special economic zones (SEZs) that provide benefits such as tax holidays and relaxed environmental regulations.
    • Karnataka is another southern state that is attractive to foreign investors. Its capital, Bangalore, is often referred to as the “Silicon Valley of India” due to the large number of IT companies that are based there. 
    • Karnataka also has a well-educated workforce and good infrastructure.