In India the routes under which foreign investment can be made are as under:
• Automatic Route: Foreign Investment is allowed under the automatic route without prior approval of the Government or the Reserve Bank of India, in all activities/ sectors as specified in the Regulation 16 of FEMA 20 (R).
• Government Route: Foreign investment in activities not covered under the automatic route requires prior approval of the Government.
Process of funding depends upon the category of business entity (Like Company, Limited Liability Partnership etc) and it is very important to proceed for a feasible option of funding.
Some of the options for receiving foreign funding with respect to company are:
Issuance of Capital Instruments: In case of Company, the company can issue capital instrument (such as equity shares, debentures, preference shares and share warrants) to foreign investors in accordance with Companies Act, 2013, Foreign Exchange Management Act (FEMA) 1999 and Reserve Bank of India (RBI) Regulations and can get foreign funding.
If the company is a registered start up company which is recognised by Department of Industrial Policy and Promotion, Ministry of Commerce and Industry (DIPP) in India, It can issue convertible Notes to its foreign investors. Provided that minimum amount of investment in convertible note shall Rs. 25 Lakhs or more in a single tranche.
External Commercial Borrowings (ECB): Company can use an option of ECB. These are commercial borrowings raised by eligible resident entities from recognised lenders and should be in conformity to ECB parameters such as minimum maturity, permitted and non-permitted end-uses, maximum all-in-cost ceiling, etc.