Issue of Shares to Non-resident Subscribers after Incorporation under FEMA

4 June 2020 • Kavita Agrawal


Issue of Shares to Non-resident Subscribers after Incorporation under FEMA

4 June 2020 • Kavita Agrawal

Once a company is incorporated, the immediate next steps are post-incorporation compliances which include conducting of first Board Meeting, appointment of first auditors, printing, issue and stamping of share certificates etc. While all these compliances are critical for a company’s smooth start, here, we shall focus on the technicalities associated with issue of share certificates to the non-resident subscribers to the Memorandum of Association (MoA) in the light of Companies Act, 2013 and FEMA, 1999.

Legal Provisions

Companies Act, 2013- As per section 56(4)(a), every company is required to deliver the share certificates to the subscribers within two months from the date of incorporation.

FEMA- As per these guidelines, capital instruments* shall be issued to the person resident outside India within sixty days from the date of receipt of the consideration. There is no separate provision under FEMA as to issue of share certificates at the time of incorporation.

Further, such issue is to be reported to the RBI through Single Master Form (by filing form FC-GPR) within thirty days from the date of issue of capital instruments*.

*Capital Instruments means equity shares, debentures, preference shares and share warrants issued by an Indian company.

Examining the Provisions

Though FEMA regulations are silent on the timeline within which the share certificates should be issued, it is relevant here because of the term “Date of Issue”. Let us understand this term first.

Date of Issue is the date on which shares are allotted to the subscribers/shareholders. Under both the Acts, the shares are to be allotted within 60 days of receipt of consideration. In case of issue of shares (other than incorporation), there is no difficulty in complying with these provisions. However, the challenge is faced in cases of incorporation. It is so because in such cases, the shares are deemed to be allotted on the date of incorporation, i.e.-

Date of Issue= Date of Incorporation

Why do we need separate provisions under FEMA to deal with the issue of shares to Non-residents at the time of Company Incorporation?

  • Under the Companies Act, 2013, since shares are deemed to be allotted on the date of incorporation, the agenda item pertaining to printing and issue of share certificates is taken up in the first Board Meeting of the company. The share certificates are to be delivered to the subscribers within two months from the date of incorporation whether the subscription money by way of inward remittance has been received or not (Section 56(4)(a) read with section 10(2) of the Companies Act, 2013).

  • Under FEMA, there is no concept of deemed allotment. So, allotment of shares without receipt of inward remittance is considered against the law. It is pertinent to mention here that newly incorporated foreign subsidiaries usually take more than two months (timeline within which share certificates should be issued) in getting their bank account operational and thereafter, transfer of funds from non-resident subscribers is effectuated.

  • While filing Single Master Form (SMF), if the Date of Issue is filled in with a date prior to date of receipt of inward remittance, the SMF gets rejected on the grounds that issue of shares and share certificates cannot be done without receipt of inward remittance. The authorities do not take into consideration that the allotment pertains to incorporation.

Reconciliation Required

In the light of the aforementioned, it can be clearly understood that the provisions of both the Acts do not go hand in hand. The purpose of adopting a set of laws is to bring uniformity in the manner in which various stakeholders deal with a specified event. But the inconsistency between Companies Act and FEMA provisions lead to inconvenience in complying with such simple provisions.

The date of issue of shares under the Companies Act, 2013, which is the date of incorporation, is not correct as per the RBI. It takes a stand that shares cannot be issued before receipt of share subscription money. In the given scenario, the challenge is that if the share certificate is issued in compliance with the Companies Act, 2013, i.e. within 2 months of incorporation, it will be a non-compliance as per the FEMA. However, if the share certificate is issued only after receipt of share subscription money which, on most of the occasions stretches well beyond 60 days of incorporation, will contravene section 56(4) of the Companies Act, 2013.

In view of the above, we understand that the RBI needs to reconcile the FEMA provisions with that of section 10(2) of the Companies Act, which states that “all monies payable by any member to the company under the memorandum or articles shall be a debt due from him to the company.” RBI needs to understand the basic fact that money for shares subscribed can only be received after the bank account of the company has come into existence. With non-residents as subscribers and proposed authorised signatory to operate bank account, it always takes additional time.

It’s difficult to bridge the inconsistency between the two laws on issue of share certificates to non-resident subscribers. Due to this, many companies are being subjected to compounding and other legal consequences provided under FEMA. A few consultants have carved out some compromised solutions like issuing of nil paid-up share certificates for the intervening period, etc. Well, given the practical understanding of the issue, it makes sense to comply with the stringent requirement, which is FEMA, and stitch all other aspects around it.


  1. I am facing similar problem. Company was incorporated in mid Jan 23 and subscription money was received in first week of May 23 from the foreign promoter. AD bank has been insisting on issuing of shares to the subscriber to MOA after receipt of sub money which will violate Sec 56(4)(a). What is the way out?

    1. Dear Reader,

      Thank you for reaching out to us with your query regarding issuing of of shares to the subscriber to MOA. As per section 56(4)(a) of the Companies Act, 2013 company should deliver the share certificates to the subscribers within two months from the date of incorporation.

      We recommend to issue the share certificate twice. First, in accordance with the Companies Act of 2013, within two months after incorporation, and second, upon receipt of the subscription money.

      You may prefer to connect with us for professional assistance in this matter.

      1. We are facing the same issue. Kindly inform what is the procedure for issuing the share certificate for the second time? It will be issued with the same details like same certificate and folio number or it has to be different? Do we need to mention anything on the share certificate specifically for the second time and the stamp duty need to be paid again?

        Kindly Suggest

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