Offers of foreign securities need careful structuring

Companies incorporated outside India may seek to raise funds by offering securities to investors resident in India. As outlined below, a private placement exemption and the foreign exchange regulations in India need to be considered in connection with such offers and sales.

Exemption and regulations

The Companies Act, 1956, sets out an exemption for the private placement of securities. Section 67(3) states that no invitation or offer shall be treated as made to the public if the offer or invitation can be regarded as (i) not being calculated to result in it becoming available for subscription or purchase by persons other than those receiving the offer or invitation, or (ii) can be regarded, in all circumstances, as being a domestic concern of the persons making and receiving the offer or invitation.

Section 67(3) also clarifies that any offer or invitation made to 50 persons or more will be construed as being made to the public. Accordingly, a foreign entity needs to ensure that an invitation or offer is not made to more than 49 persons in India. The 49-person limit does not differentiate between retail and institutional investors and regulates both “invitations” and “offers”.

Bhakta Patnaik and Sarayu Pani are lawyers at S&R Associates, a law firm based in New Delhi and Mumbai. The views expressed above are those of the authors and not a substitute for legal advice.