OCI Holder are partners and holding 99%

This query is : Resolved

Varalakshmi Elumalai (Querist)
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16 December 2024 Hello sir / mam,
A partnership firm floated with 3 partners out of which 2 partners are Overseas Citizen of India and both of them contributed 99% of capital and profit sharing also 99%.

Please clarify whether OCI can float partnership firm and contribute 99% capital and what are the compliances to be made and consequences to be faced

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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16 December 2024 There's no explicit restriction under the Indian Partnership Act, 1932, that prevents OCIs from being part of a partnership firm. However, the primary regulatory body to consider here is FEMA which governs foreign investments. nder FEMA regulations, particularly Schedule 4 of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000, OCIs are permitted to invest in Indian companies, which includes partnership firms.
For partnership firms, there's no specific cap on the percentage of capital that can be contributed by NRIs or OCIs, but they must comply with FEMA guidelines which require any investment by non-residents to be reported to the Reserve Bank of India (RBI) through the appropriate channels, like Form FC-GPR for reporting foreign direct investment in an LLP or company context, although this form is not directly applicable to partnerships.
While there's no explicit prohibition on OCIs contributing 99% of the capital or sharing 99% of the profits, this setup could lead to scrutiny. Such a disproportionate share might raise issues concerning control, repatriation of profits, and whether this structure aligns with the intent of fostering genuine business activity in India rather than being a vehicle for tax evasion or other non-commercial purposes.