FEMA And Nominee Share Transfers: A Regulatory Analysis

Introduction

The nominee shareholding arrangement is a structural constraint in a foreign owned Indian subsidiary. In a typical inbound investment scenario, a foreign parent company incorporates a wholly owned subsidiary in India. Since the Companies Act, 2013 (“the Act”) mandates a minimum of two shareholders at the time of incorporation of a private limited company¹ and because the foreign parent company may not wish to dilute its economic interest, it is common and market practice for one share to be held by a resident Indian individual as a nominee of the foreign entity. The nominee holds the share in the name only, the beneficial interest, the voting rights vests entirely with the foreign parent.