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Yogesh Chandra   24 December 2021

Agreement between residents of different countries

Two people residing in different countries want to enter into an agreement to work on a project together and to have a specific equity split in a new company which will be formed when the project will be launched to the public.

 

What is the cheapest way to enter into such an agreement?

For example, if it was two Indian residents, they would just make an agreement on stamp paper and/or notarize it.



Learning

 4 Replies

SIVARAMAPRASAD KAPPAGANTU (Retired Manager)     27 December 2021

You are mentioning about equity split. From your query, it is not clear whether a foreigner is investing in India with you. Or you are investing in a foreign country with a foreign colloborator.

 

If it is investing in India, the same is governed under FEMA Rules under Foreign Direct Investment.

If it is investing abroad, the same is governed under FEMA Rules under Overseas Direct Investment or if invested as an individual under Liberalised Remittance Scheme rules.

 

In both scenarios, you need to comply with the RBI rules which include submission of papers/documents online through your bank.

 

For the above, you need to consult a Chartered Accountant.

 

As to entering into an agreement you can do so through a Lawyer specializing in international agreements clearly defining roles of each person and jurisdiction also in case of a dispute. The agreements are subject to FEMA regulations which need to be examined before proceeding further.

1 Like

Yogesh Chandra   27 December 2021

Sir the equity split is with regards to the work to be done. There is NO exchange of monies. Hence no investment.

To give a practical example: Suppose I am a server (backend) engineer and the other guy (foreigner) is a app (frontend) developer. We decide to work together to build a new product. And we decide on a 50 50 split of the new company as and when it will be formed in the future (if we successfully develop a good product together and decide to market it).

Will an agreement be subject to FEMA rules even if no financial transaction is involved?

Do I need to make this agreement on stamped paper and/or notarize it? How do I ask the foreign individual to "legalize" his copy of the agreement? By notarizing?

SIVARAMAPRASAD KAPPAGANTU (Retired Manager)     27 December 2021

It is better you consult a Chartered Accountant/Lawyer specializing in foreign contracts and get full guidance.

1 Like

Aryan Raj   27 December 2021

In response to your query,

When contracts cross national borders, a single country's legal system becomes insufficient to regulate and control the consequences of international agreements.

When parties to a contract are from different nations, the transaction is impacted by at least two systems of law, and the rules and guidelines of private international law are applied. As a result, international conventions such as the United Nations Convention on Contracts for the International Sale of Goods (CISG) and arbitration clauses play an important part in the development and governance of contracts in India.

But you do have an option of making a choice of law which you can both agree on to govern your agreement you can consult a lawyer and formally communicate with your friend who are going to enter the contract with and decide which law your contract will obey.

Regards,

Aryan Raj 


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