FDI in LLPs – Regulatory Framework

Kalpana Borjha| Kalinga University| 17th June 2020   

Introduction

A Limited Liability Partnership (LLP) is a corporate body which has a separate identity from its partner and it aims at small and medium-sized businesses. LLP was introduced in India through the Limited Liability Partnership Act, 2008 by the Ministry of Corporate Affairs. Any person residing out of India can invest by contributing capital or profit share in LLPs in India. Reserve Bank of India regulates foreign direct investments in LLPs

What is LLP?

An LLP is like a limited partnership where some or all the partners have limited liability, depending upon the jurisdiction. It is flexible as a Partnership firm with benefits of Limited Liability Company. Partners in LLPs are not responsible for each other’s misconduct or negligence or any act of such kind. Each member is protected from their personal liability. In any situation, if the partnership fails, the creditors cannot go after the partner’s personal asset.

FDI in LLP

An entity incorporated or a person residing outside India can contribute or share in the capital structure of an LLP in India under the Foreign Direct Investment. Any person or entity outside India are eligible investors other than citizen or entity of Pakistan and Bangladesh, SEBI registered Foreign Intuitional Investor (FII), Foreign Venture Capital Investor (FVCI) and Qualified Foreign Investor (QFI); or Foreign Portfolio Investor registered under the Securities and Exchange Board of India Regulation, 2014. LLPs which are operating in sectors or activities where 100% FDI is allowed under the automatic route of FDI are eligible for accepting FDI.

Sectors which accept less than 100% FDI under automatic route are not eligible for accepting FDIs. Also, those sectors which are eligible to accept FDI under Government approval route or Agricultural or Plantation activity and print media are not eligible for FDI in LLPs. A foreign national, a foreign LLP, a company registered under the Companies Act, an Indian national, etc can be partners of an LLP.

Funding in LLPs

• Downstream Investment by Company: An Indian Company will be permitted to make downstream investment in LLPs only if the company and the LLP are operating in sectors where 100% FDI is allowed through an automated route.
• Investment by Cash Consideration: Capital Structure in LLPs is allowed by cash consideration by inward remittance through normal banking channels or by debit. Non-cash contribution in LLPs can be done only after permission of the Government f India.
• LLPs are not permitted to avail External Commercial Borrowings (ECBs).

Reporting of FDI: LLPs need to report to the Regional RBI Officer about the details of the amount received as capital contributions and shares in profits. The report should be submitted within 30 days from the date of receipt of funds in form FDI-LLP (I) and report of disinvestment or transfer of capital contribution or profit-sharing between an LLP and foreign investor through Authorized Dealer Bank is to be done within 60 days from the date of receipt of fund.

 LLPs are also required to submit an Annual Report on Foreign Liabilities and Assets through form FLA to the Reserve Bank of India before the 15^th of July every year.

Conclusion

FDI rules regarding LLP are considered liberalized as compared to investment in Indian companies, however, its success depends upon the recognition and support of allied regulations in India. FDI in LLPs provides foreign investors an alternative to investment in companies, this entitles them of intrinsic flexibility and tax efficiency in the structure of LLPs. This not only benefits the investors but also is a great help in increasing the joint venture in the country with increased employment opportunities and technological advancements.