Limited Liability Partnership form of business in India comes under the Limited Liability Partnership Act, 2008 has become a popular form of business entity in India owing to its simplified process for registration & maintenance. LLPs allow many of the small and medium-sized to enjoy a separate legal entity, improve transferability and provide its promoters with limited liability protection.
Limited Liability Partnership act as a hybrid entity with benefit of a company and operational flexibility of a partnership. The concept was introduced by the MCA (Ministry of Corporate Affairs) by Limited Liability Partnership Act, 2008 on 9th January 2009.
Foreign Direct Investment In LLP
Foreign investment is permitted under the automatic route in LLP operating in sectors where 100% FDI is allowed via the automatic route and there are no FDI-linked performance conditions. As of now, payment by an eligible foreign investor towards capital profit share of Limited Liability Partnership is allowed only by way of cash consideration in terms of the Foreign Exchange Management Act, 1999.
FDI policy on Limited Liability Partnership was amended in 2015 to provide that investments in LLPs will not require Government approval.
What is the Eligible Form of FDI?
A person who lives outside India or an entity incorporated outside India, may invest, through way of capital contribution or by way of acquisition/ transfer of profit shares in the capital structure of an LLP.
Routes for Foreign Direct Investment in an LLP
The RBI has given two routes for Foreign Direct Investment in India.
- Automatic Route
- Approval/ Government Route
Under the Automatic route, there is no requirement of permission from the RBI for foreign direct investment. If an entity is looking for foreign investment under this, then no approval is needed. There are specific sectors in which Foreign Direct Investment is not allowed.
The LLP act allows a foreign entity to be a member of the LLP. This is not permitted due to the provisions of the Foreign Exchange Management Act, 1999 (FEMA). A relaxation was fetched out to allow Foreign Direct Investment in an LLP.
What is the Criteria for Foreign Direct Investment in an LLP (FDI-LLP)
The RBI has brought out specific criteria for Foreign Direct Investment in an LLP. The below mention are the investors who are allowed to invest in an LLP.
- A resident of outside India.
- A business/ company/ entity incorporated outside India.
The below mention cannot carry out FDI in an LLP:
- A person who is a resident of Pakistan or Bangladesh.
- A business/ company/ entity incorporated either in Pakistan or Bangladesh.
- Any institution that has been come in Foreign Institutional Investor for FDI in an LLP.
- A Foreign Venture Capitalist under SEBI.
- An investor defined as a Foreign Portfolio Investor for Foreign Direct Investment.
FDI is prohibited in the following sectors:
- Gambling
- Gaming and Lottery
- Tobacco and Sale of Cigar Products
- Chit Funds Businesses
- Agricultural Sectors
- Business Dealings in energy, automatic energy, and defense.
What is the Mode of Foreign Direct Investment in an LLP?
FDI into a company or entity can be made through 2 ways:
- Direct Investment- In this investment, the investment is made directly by a foreign entity into an Indian Entity.
- Indirect Investment- In this investment, the investment is the investment that is made indirectly by a foreign entity into an Indian entity. When a foreign company has some percentage share in a company, and the foreign entity invests in the LLP through the Indian company. It is also popular as downstream investment.