Legal Environment in foreign Trade FII INDIA

1. Foreign Institutional Investment
IN
INDIA

2. Types Of Foreign Investment
Foreign
Investment
Direct Investment
(FDI)
Wholly Owned
Subsidiary
Joint Venture
Acquisition
Portfolio
Investment (FPI)
Investment By
FIIs
Investment In
GDRs,ADRs,FCCBs

3. Significances Of Foreign Investment
• Expansion In Employment
• Consumer Benefit
• Technological Improvement
• Cultural Improvement
• Import Export
• Growth In Economy
• Government Benefits
• Competition
• Managerial Revolution
• Global Exposer
• Global Relationship

4. Limitations Of Foreign Investment
• Work On The High Profit Areas Rather Than
Priority Sector
• Technological Advancement
• Unfavourable Effect Towards Balance Of Payment

5. Growth Of Foreign Investment
Region /Economy 1996 1997 1998 1999 2000 2001 2007 2008 2009
World 386140 478082 694457 1088263 1491934 735146 2099973 1770873 1114189
Developed
Economies
219908 267947 484239 837761 1227476 503144 1444075 1018273 565892
Developing
Economics
152685 191022 187611 225140 237894 204801 564930 630013 478349
Asia 93331 105828 96109 102779 133707 102066 336922 372739 301367
South, East And
South-East Asia
87843 96338 86252 999901 31123 94365 258830 282440 233050
China 1st 40180 44237 43751 40319 40772 46846 83521 108312 95000
India 2nd 2525 3619 2633 2168 2319 3403 25001 40418 34613
Indonesia 4th 6194 4677 356 2745 4550 3277 6928 9318 4877
Korea 6th 2325 2844 5412 9333 9283 3198 2628 8409 5844
Malaysia 7th 7296 6324 2714 3895 3788 554 8538 7318 1381
Philippines 8th 1520 1249 1752 578 1241 1792 2916 1544 1948
Singapore 3rd 8608 10746 6389 11803 5407 8609 35778 10912 16809

6. Meaning Of FII
Foreign Institutional Investment
 FII denotes all those investors or investment companies that are not located within
the territory of the country in which they are investing.
 “SEBI’s definition of FIIs presently includes foreign pension funds, mutual funds,
charitable/endowment/university funds etc. as well as asset management
companies and other money managers operating on their behalf.”
 Foreign Institutional Investor‘(FII) means an entity established or incorporated
outside India which proposes to make investment in India and which is registered
as a FII in accordance with the SEBI (FII) Regulations 1995.

7. What are Foreign Investors looking for?
• Good projects
• Demand Potential
• Revenue Potential
• Stable Policy Environment/Political
Commitment
• Optimal Risk Allocation Framework

8. Advantages for Foreign Institutional
Investors
• FIIs Can Individually Purchase Up To 10% And Collectively Up To 24% Of The Paid-up
Share Capital Of An Indian Company
• FII Can Purchase Shares Through Open Offers/Private Placement/Stock Exchange
• Shares Purchased By FII Through Stock Exchange Cannot Be Sold Through A Private
Arrangement
• FIIs Can Raise Money Through Participatory Notes Or Offshore Derivative
Instruments For Investment In The Underlying Indian Securities

9. Disadvantages of FII
• Problems of Inflation
• Problems for small investor
• Adverse impact on Exports

10. Investment limits on Equity by FII
– FII, on its own behalf, shall not invest in equity more than 10% of
total issued capital of an Indian company.
– Investment on behalf of each sub-account shall not exceed 10% of
total issued capital of an India company.
– These limits are within overall limit of 24% - 49 % / or the sectorial
caps a prescribed by Government of India / Reserve Bank of India.

11. Investment Limits On Debt Investments By FII
– For FII Investments In Government Debt, Currently Following
Limits Are Applicable:
– 100 % Debt Route US $ 1.55 Billion
– 70 : 30 Route US $ 200 Million
– Total Limit US $ 1.75 Billion
– For Corporate Debt The Investment Limit Is Fixed At
US $ 500 Million.

12. FII: How To Impact Indian Economy
FII leads to appreciation of the currency: FII need to maintain an account with RBI fro
all transaction. to understand the implication of FII on the exchange rate we have to
understand how the value of one currency appreciate or depreciate against the other
currency
FII and exports: if our Indian currency appreciates just because of FII (net inflow in
India) there is adverse effect on our export. Our export industry will become
uncompetitive due to appreciation of rupees.
FII and stock market: when cap on FII is high then they can bring in lot of funds in
country’ stock market.
FII and inflation: the huge amount of FII fund flow creates the huge demand for Indian
rupees. In that situation RBI print more money in the market. This situation could lead
to excess liquidity thereby leading to inflation.

13. Differentiation Between
FDI & FII
FDI
1. It is long-term investment
2. Investment in physical assets
3. Aim is to increase enterprise capacity or
productivity or change management control
4. Leads to technology transfer, access to markets
and management inputs
5. FDI flows into the primary market
6. Entry and exit is relatively difficult
7. FDI is eligible for profits of the company
8. Does not tend be speculative
9. Direct impact on employment of labour and
wages
FII
1. It is generally short-term investment
2. Investment in financial assets
3. Aim is to increase capital availability
4. FII results in only capital inflows
5. FII flows into the secondary market
6. Entry and exist is relatively easy
7. FII is eligible for capital gain
8. Tends to be speculative
9. No direct impact on employment of labour and
wages

14. Setting up of branch
office abroad

15. Branch office:-
Section 2(14) of Companies Act, 2013 – any establishment decsribe as such
by the company
Who can establish a branch abroad?
A person resident in India can establish a branch or liaison office outside
India or he can establish a JV or WOS with a person resident outside India.

16. Branch Office Vs. Liaison Office Vs. Project Office
Branch Office Liaison Office Project office
Office established outside India
by an Indian entity for conducting
normal business activity abroad
It acts as a channel of
Communication between Head
Office in India and parties
abroad. It is not allowed to
undertake any business activity.
A temporary office established
abroad for a specific project.

17. Benefits of setting up of branch abroad
• Spreading up of Business
• Increasing Customer Base
• Easy accessibility of product
• Geographical Benefits

18. HOW TO ESTABLISH A BRANCH OFFICE ABROAD?

19. STEPS INVOLVED
• Approval of Board for establishment of Branch
• Appointment of Authorised Representative
• Opening of Bank Account
• Filing of forms and applications, along with supporting documents
to RBI through AD
• Compliance with country specific requirements

20. Remittance of expenses by Indian Entity
 Initial Expenses :- 15 per cent of the average annual sales/ income or
turnover of the Indian entity during the last two financial years or
up to 25 per cent of the net worth whichever is higher
 Recurring Expenses :- 10 per cent of such average annual sales/ income or
turnover during the last financial years

21. Acquisition of Property for branch office
•Purchase of Office equipments and other assets for the normal
business operations of the overseas branch office shall not be
treated capital account transactions and hence No RBI
permission.
•Acquisition of immovable property outside India by way of
lease, not exceeding a period of five years by the overseas
branch or office is permitted without obtaining the RBI’s
permission.

22. Prohibition on activities of Branch Office:
• Shall not enter into contract or agreement in contravention of the
Act or rules or regulations applicable to it.
• Shall not create any financial or contingent liabilities for head
office in India.
• Shall not invest surplus fund abroad without prior approval of RBI
but such surplus fund should be repatriated to India.

23.  Documents to be submitted
• Form A2
• TT (Telegraphic Transfer) Application
• Form OBR (office of budget responsibility) - Along with the following
documents
• Correspondence, if any, in original together with photocopies
regarding the arrangement made in foreign Countries.
• Bank certificate together with copies for immediately preceding four
calendar half years in support of export realization.
•Particulars of the turnover duly certified by the Statutory Auditors.

24. LICENSING & FRANCHISING

25. Definition
• Franchising is a business model in which many different owners share a
single brand name.
• A parent company allows entrepreneurs to use the company's strategies and
trademarks; in exchange
• the franchisee pays an initial fee and royalties based on revenues.
• The parent company also provides the franchisee with support, including
advertising and training, as part of the franchising agreement.

26. Need
• Franchising is a faster, cheaper form of expansion than adding company-
owned stores, because it costs the parent company much less when new
stores are owned and operated by a third party.

27. How Franchising Works
• The franchising business model consists of two operating partners:
• the franchisor, or parent company, and the franchisee, the proprietor that
operates one or multiple store locations.
• Franchising agreements usually require the franchisee to pay an initial fee
plus royalties equal to a certain percentage of the store's monthly or yearly
sales.
• Initial fees vary significantly across each industry.

28. Advantages of the Franchising Model
• Franchisees require less initial capital than independently
starting a company and can use proven successful
strategies and trademarks.
• Franchisees are provided with significant amounts of
training, not common to most entrepreneurs.
• The franchisor benefits because it can expand rapidly
without having to increase its labor force and operating
costs, using much less capital.

29. LICENSING
Is a form of foreign market entry based on a contractual
relationship, where a company (the licensor) grants rights to
intangible property to another company (the licensee) to use in a
specified geographic area for a specific period time and the
licensee ordinarily pays a royalty to the licensor.

30. ELEMENTS
• Contractual relationship
• Licensor
• Licensee
• Rights
• Intangible property
• Payment (Royalties)
• Specified geographic area and specific period time

31. Contractual relationship
• Is the relationship that exists between parts to sign a
contract, establishing rights and obligations

32. LICENSOR AND LICENSEE
• Licensor: Is obliged to furnish technical information and
assistance, agrees to make available to another company
abroad, use of its patents and trademarks, its
manufacturing processes, its trade secrets, and its
managerial and technical services
• Licensee: Is obliged to exploit the rights effectively and to
pay compensation to the licensor, agrees to pay the
licensor a royalty or other form of payment according to a
schedule agreed upon by the two parties

33. INTANGIBLE PROPERTY
Include any item of worth that is not physical in nature.
• Patents, inventions, formulas, processes, designs,
patterns
• Copyrights for literary, musical, or artistic compositions
• Trademarks, trade names, brand names
• Methods, programs, procedures, systems
• Manufacturing techniques

34. Joint Venture
A joint venture is a temporary business association between
two or more persons or organizations for profit without
forming a permanent partnership, corporation, or other
business entity. Members of the joint venture maintain their
independence.

35. Types of Joint Venture
• Domestic Joint Venture
• International Joint Venture

36. Advantage of Joint Venture
• Accessing additional financial resources
• Sharing the economic risk with co-venturer
• Widening economic scope fast
• Tapping newer methods, technology, and approach you do not have
• Building relationship with vital contacts

37. Disadvantage of Joint Venture
• Shared profit
• Diminished control over some important matters
• Undesired outcome of the quality of the product or project
• Uncontrolled or unmonitored increase in the operating cost

38. Important Clause of Joint Venture
• The proportion of shareholding in the joint venture company
• Specify nature of shares, indicate their transferability conditions.
• Composition of the Board of Directors, Appointment of Chairman
,Quorum of Board meetings ,Casting vote provisions.
• General meeting.
• Appointment of CEO/MD.
• Appointment of Management Committee
• Important decisions with mutual consent of partners
• Dividend policy
• Funding provisions

39. Cont
• Access conditions.
• Change of control/exit clauses.
• Anti-compete clauses
• Maintaining Confidentiality
• Indemnity clauses.
• Assignment.
• Break of deadlock.
• Dispute Resolution
• Applicable law.
• Force Majeure.
• Termination provisions.

40. • Thank You