What changed
RBI removed the 1% cap on qualification shares for resident individuals becoming directors of overseas companies, allowing acquisition as per host country law. It also granted general permission for acquiring shares in lieu of professional services or director's remuneration, and liberalised ESOP permissions by removing the 51% equity stake condition. All acquisitions are now within the overall LRS limit.
What it means for you
Banks can now process these specific overseas investment requests (qualification shares, professional services, ESOPs) without prior RBI approval, reducing compliance burden. The removal of the 1% cap on qualification shares gives more flexibility for directors. However, lenders must ensure each remittance stays within the individual's LRS ceiling and verify documentation for host country requirements.
What you must do
- Update internal policies to process qualification share remittances without the 1% cap, subject to host country law and LRS limits.
- Verify that professional service or director remuneration share acquisitions are within the individual's LRS ceiling.
- Ensure ESOP-related share purchases comply with existing general permission conditions and LRS limits.
- Maintain proper documentation for each transaction, including proof of directorship, service agreement, or ESOP offer.
Who it affects
Category-I Authorised Dealer Banks, Resident individuals investing overseas, Resident individuals becoming directors of overseas companies, Professionals receiving foreign shares as compensation
What is the new limit for qualification shares for directors?
The earlier 1% cap on paid-up capital has been removed. Now, the number of shares must be the minimum required by the host country's law for holding the director post, and the remittance must be within the individual's LRS limit.
Can I now acquire foreign shares for professional services without RBI approval?
Yes, RBI has granted general permission for resident individuals to acquire shares of a foreign entity as full or partial consideration for professional services rendered or in lieu of director's remuneration, subject to the LRS ceiling.
Does this circular affect ESOP acquisitions?
Yes, it liberalises the existing general permission for ESOPs by removing the condition that the foreign company must hold at least 51% equity in the Indian company. Now, resident employees or directors may accept shares offered under an ESOP Scheme globally on a uniform basis, irrespective of the percentage of direct or indirect equity stake in the Indian company, subject to uniform global offering and annual return submission.