Partnership act 1932
This query is : Resolved
11 April 2016
Whether a foreign person and An Indian person can form a partnership firm?
12 April 2016
In the present economic conditions, FDI is allowed in the form of Company or LLP. Investment in the form of Partnership is under approval by RBI with the movement of 'Make in India' .But that can be done only by Foreign Institutional Investors.
12 April 2016
Pl tell me in case a foreigner is resident Indian as per sec 6 of the income tax act and he is having his capital contribution out of his past savings now tell me whether can he enter into partnership
12 April 2016
Whether a foreign nation living in India as ordinary resident as per sec 6 of the income tax act enter as partner in a firm if he is contributing his capital from past savings.
09 August 2024
Yes, a foreign national and an Indian person can form a partnership firm in India, even if the foreign national is a resident of India as per Section 6 of the Income Tax Act. However, there are specific regulatory and legal considerations to be aware of.
### **1. Formation of Partnership**
**Legal Framework:**
1. **Indian Partnership Act, 1932:**
- The Indian Partnership Act does not explicitly prohibit foreign nationals from entering into partnerships with Indian citizens. Therefore, it is legally permissible for a foreign national to form a partnership with an Indian citizen.
2. **Foreign Exchange Management Act (FEMA), 1999:**
- If the foreign national brings capital from abroad, FEMA regulations apply. FEMA governs the inflow of foreign exchange and foreign investment in India.
### **2. Resident Status Under the Income Tax Act**
**Section 6 of the Income Tax Act:**
1. **Ordinary Resident Status:**
- According to Section 6 of the Income Tax Act, a foreign national who resides in India for more than 182 days during the financial year (or 60 days in a financial year and 365 days in the preceding four financial years) may be considered an ordinary resident.
2. **Impact on Partnership:**
- If a foreign national is an ordinary resident, their tax obligations are similar to those of Indian residents. This status does not affect their ability to form or join a partnership in India.
### **3. Capital Contribution and Regulatory Compliance**
**Capital Contribution:**
1. **Past Savings:**
- A foreign national can contribute capital from past savings to a partnership firm in India. The source of capital (whether from past savings or otherwise) must be legally documented.
2. **Regulatory Compliance:**
- If the foreign national’s capital is brought into India from abroad, it must comply with FEMA regulations. This may include obtaining approvals from the Reserve Bank of India (RBI) or adhering to the automatic route for foreign investment.
### **4. Practical Considerations**
**A. Drafting the Partnership Deed:**
- The partnership deed should clearly specify the terms of the partnership, including capital contributions, profit-sharing ratios, and any specific provisions related to the foreign national partner.
**B. Compliance with FEMA:**
- Ensure that any capital contribution from abroad complies with FEMA regulations. If the foreign national is contributing funds from within India (i.e., past savings), then FEMA regulations regarding inward remittances do not apply.
**C. Tax Implications:**
- **Income Tax:** The foreign national, as a partner, will be subject to Indian income tax laws. They must file income tax returns in India and declare their share of profits from the partnership.
- **Tax Treaties:** Consider any applicable Double Taxation Avoidance Agreements (DTAAs) between India and the foreign national’s country of residence to avoid double taxation.
### **5. Sample Partnership Deed**
Here is a simplified draft of a partnership deed including a foreign national:
**Partnership Deed Draft:**
```
**Partnership Deed**
**This Deed of Partnership** is made on this [Date] day of [Month, Year] between:
1. **[Partner A’s Name]**, residing at [Address], (hereinafter referred to as "Partner A").
2. **[Partner B’s Name]**, a foreign national residing at [Address in India], (hereinafter referred to as "Partner B").
**Whereas**:
- The partners wish to enter into a partnership and have agreed on the terms and conditions set forth below.
**Now, Therefore, it is agreed as follows:**
1. **Name of the Firm:**
- The firm shall be known as [Firm’s Name].
2. **Business:**
- The business of the partnership shall be [Nature of Business].
3. **Capital Contribution:**
- Partner A shall contribute [Amount] to the capital of the firm.
- Partner B shall contribute [Amount] to the capital of the firm, sourced from past savings.
4. **Profit and Loss Sharing Ratio:**
- The profits and losses of the firm shall be shared by the partners in the following ratio:
- Partner A: [Percentage]%
- Partner B: [Percentage]%
5. **Bank Account:**
- The firm shall maintain a bank account with [Bank’s Name], and both partners shall be signatories to the account.
6. **Duration:**
- The partnership shall commence from [Commencement Date] and shall continue until terminated as per the terms of this deed.
7. **Accounts and Audits:**
- The firm’s accounts shall be maintained and audited in accordance with Indian laws and regulations.
8. **Dissolution:**
- The firm may be dissolved by mutual consent or as per the provisions of the Indian Partnership Act, 1932.
**In Witness Whereof**, the parties hereto have set their hands and seals to this Deed on the day, month, and year first above written.
**Partner A:**
Signature: __________________________
**Partner B:**
Signature: __________________________
**Witnesses:**
1. **[Witness 1’s Name]**
Signature: __________________________
Address: __________________________
2. **[Witness 2’s Name]**
Signature: __________________________
Address: __________________________
```
### **Conclusion**
A foreign national can enter into a partnership with an Indian citizen and contribute capital from past savings. Ensure compliance with relevant legal frameworks, including FEMA for any foreign contributions, and document the partnership terms clearly in the partnership deed. Consulting with legal and financial professionals is advisable to ensure all regulatory requirements are met.
### **1. Formation of Partnership**
**Legal Framework:**
1. **Indian Partnership Act, 1932:**
- The Indian Partnership Act does not explicitly prohibit foreign nationals from entering into partnerships with Indian citizens. Therefore, it is legally permissible for a foreign national to form a partnership with an Indian citizen.
2. **Foreign Exchange Management Act (FEMA), 1999:**
- If the foreign national brings capital from abroad, FEMA regulations apply. FEMA governs the inflow of foreign exchange and foreign investment in India.
### **2. Resident Status Under the Income Tax Act**
**Section 6 of the Income Tax Act:**
1. **Ordinary Resident Status:**
- According to Section 6 of the Income Tax Act, a foreign national who resides in India for more than 182 days during the financial year (or 60 days in a financial year and 365 days in the preceding four financial years) may be considered an ordinary resident.
2. **Impact on Partnership:**
- If a foreign national is an ordinary resident, their tax obligations are similar to those of Indian residents. This status does not affect their ability to form or join a partnership in India.
### **3. Capital Contribution and Regulatory Compliance**
**Capital Contribution:**
1. **Past Savings:**
- A foreign national can contribute capital from past savings to a partnership firm in India. The source of capital (whether from past savings or otherwise) must be legally documented.
2. **Regulatory Compliance:**
- If the foreign national’s capital is brought into India from abroad, it must comply with FEMA regulations. This may include obtaining approvals from the Reserve Bank of India (RBI) or adhering to the automatic route for foreign investment.
### **4. Practical Considerations**
**A. Drafting the Partnership Deed:**
- The partnership deed should clearly specify the terms of the partnership, including capital contributions, profit-sharing ratios, and any specific provisions related to the foreign national partner.
**B. Compliance with FEMA:**
- Ensure that any capital contribution from abroad complies with FEMA regulations. If the foreign national is contributing funds from within India (i.e., past savings), then FEMA regulations regarding inward remittances do not apply.
**C. Tax Implications:**
- **Income Tax:** The foreign national, as a partner, will be subject to Indian income tax laws. They must file income tax returns in India and declare their share of profits from the partnership.
- **Tax Treaties:** Consider any applicable Double Taxation Avoidance Agreements (DTAAs) between India and the foreign national’s country of residence to avoid double taxation.
### **5. Sample Partnership Deed**
Here is a simplified draft of a partnership deed including a foreign national:
**Partnership Deed Draft:**
```
**Partnership Deed**
**This Deed of Partnership** is made on this [Date] day of [Month, Year] between:
1. **[Partner A’s Name]**, residing at [Address], (hereinafter referred to as "Partner A").
2. **[Partner B’s Name]**, a foreign national residing at [Address in India], (hereinafter referred to as "Partner B").
**Whereas**:
- The partners wish to enter into a partnership and have agreed on the terms and conditions set forth below.
**Now, Therefore, it is agreed as follows:**
1. **Name of the Firm:**
- The firm shall be known as [Firm’s Name].
2. **Business:**
- The business of the partnership shall be [Nature of Business].
3. **Capital Contribution:**
- Partner A shall contribute [Amount] to the capital of the firm.
- Partner B shall contribute [Amount] to the capital of the firm, sourced from past savings.
4. **Profit and Loss Sharing Ratio:**
- The profits and losses of the firm shall be shared by the partners in the following ratio:
- Partner A: [Percentage]%
- Partner B: [Percentage]%
5. **Bank Account:**
- The firm shall maintain a bank account with [Bank’s Name], and both partners shall be signatories to the account.
6. **Duration:**
- The partnership shall commence from [Commencement Date] and shall continue until terminated as per the terms of this deed.
7. **Accounts and Audits:**
- The firm’s accounts shall be maintained and audited in accordance with Indian laws and regulations.
8. **Dissolution:**
- The firm may be dissolved by mutual consent or as per the provisions of the Indian Partnership Act, 1932.
**In Witness Whereof**, the parties hereto have set their hands and seals to this Deed on the day, month, and year first above written.
**Partner A:**
Signature: __________________________
**Partner B:**
Signature: __________________________
**Witnesses:**
1. **[Witness 1’s Name]**
Signature: __________________________
Address: __________________________
2. **[Witness 2’s Name]**
Signature: __________________________
Address: __________________________
```
### **Conclusion**
A foreign national can enter into a partnership with an Indian citizen and contribute capital from past savings. Ensure compliance with relevant legal frameworks, including FEMA for any foreign contributions, and document the partnership terms clearly in the partnership deed. Consulting with legal and financial professionals is advisable to ensure all regulatory requirements are met.
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