FEMA (Foreign Exchange Management Act)

Definition

India's foreign-exchange law, which governs how foreign investors bring capital in and take proceeds out of the country — including pricing rules for share transfers between resident and non-resident holders.

Why it matters for a secondary

A foreign buyer purchasing secondary shares from an Indian resident seller (or vice versa) has to price the deal within FEMA's valuation rules, which is one more layer of diligence Indian secondaries carry that pure onshore-to-onshore deals don't.

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How it works in practice

FEMA governs cross-border capital movement into and out of India, including the pricing and reporting of share transfers between residents and non-residents. Transfers between a resident and a non-resident must respect pricing guidelines and be reported through the prescribed filings — so a cross-border secondary has a compliance path as well as a commercial one.

A concrete illustration

A non-resident fund buys shares from an Indian resident shareholder. The price must satisfy the applicable valuation guidelines, the transaction must be routed and reported correctly, and the filings must be completed within the prescribed timelines. A price agreed outside those guidelines cannot simply be executed as agreed.

What people most often get wrong

FEMA constrains the price itself, not merely the paperwork — a discount that seems commercially reasonable may not be permissible on a resident-to-non-resident transfer. Establish the pricing constraint before negotiating, not after.