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FDI in Limited Liability Partnership

April 7, 2016     by Simratjeet Kaur

Limited Liability Partnership or LLP was introduced by Indian government though Limited Liability Partnership Act, 2008. LLP is an entity structure which is a mixture of private limited company and a partnership firm. But unlike the latter it is a separate legal entity and limits the liability of its partners.

The LLP Act 2008 allows foreign national and foreign LLP’s to become partner in LLP but as per Foreign Exchange Management Act, 1999 and rules and regulations made thereunder, FDI in LLP was not allowed. In the year 2011 the regulatory policy for FDI was amended and 100% FDI was allowed in LLPs, but prior approval of Government was needed for it.

The Government of India has further reviewed the FDI policy on 10th November, 2015 where additional changes w.r.t. FDI in LLPs was introduced. The changes are as follows:

  • FDI is permitted upto 100% through Automatic Route in LLPs which are operating in sectors where 100% FDI is allowed through Automatic route.
  • An LLP with FDI is permitted to make downstream investment in another LLP or Company in sectors where 100 % FDI is allowed under Automatic Route.
  • There are no FDI linked performance conditions attached to the changes introduced.

The FDI Policy has further subjected the following conditions to downstream investments by Indian LLPs:

  • The LLP shall notify Secretariat for Industrial Assistance, Department of Industrial Policy and Promotion and Foreign Investment Promotion Board of its downstream investment within 30 days of such investment.
  • Capital contribution shall be valued with applicable SEBI/RBI guidelines.
  • For the purpose of downstream investment, Indian LLP making the investment would have to bring requisite funds from abroad and not take loans from the domestic market.

Allowing FDI in LLP is a welcome move of the Government of India, as it would provide foreign investors an alternate form of business other than company and would entitle them to benefit with inherent flexibility & tax efficient LLP structure.

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