FDI IN LIMITED LIABILITY PARTNERSHIPS (LLPs)

LIMITED LIABILITY PARTNERSHIP ACT, 2008

FDI IN LIMITED LIABILITY PARTNERSHIPS (LLPs)Foreign direct investment (FDI) is an investment made by a company or individual in one country in business interests in another country. It can be in the form of directly establishing new business(greenfield investment) or in the form of acquiring existing businesses (brownfield investment)

Under the current FDI policy, foreign investment in Indian Companies is permitted under:

  1. the automatic route; and
  2. the approval route (with prior approval of the Foreign Investment Promotion Board (‘FIPB’), depending on the sector in which FDI is being inducted.

 

However, Any FDI in an LLP shall require prior Government/FIPB approval. Any form of foreign investment in an LLP, direct or indirect (regardless of nature of ‘ownership’ or ‘control’ of an Indian Company) shall require Government/FIPB approval.

 

Eligible Investors for FDI in Limited Liability Partnerships (LLPs)

  1. A Person resident outside India
  2. An Entity incorporated outside India

Prohibited Investors

  1. A citizen/entity of Pakistan and Bangladesh;
  2. A SEBI registered Foreign Institutional Investor (FII);
  3. A SEBI registered Foreign Venture Capital Investor (FVCI);
  4. A SEBI registered Qualified Foreign Investor (QFI);
  5. a Foreign Portfolio Investor registered in accordance with Securities and Exchange Board of India(Foreign Portfolio Investors) Regulations, 2014 (RFPI).

 

FDI in LLPs is permitted subject to the following conditions:

(i) FDI is permitted in Limited Liability Partnership (LLPs) operating in sectors/activities where 100% FDI is allowed, through the automatic route and there are no FDI-linked performance conditions.

(ii)An Indian company or an LLP, having foreign investment, is also permitted to make downstream investment in another company or LLP in sectors in which 100% FDI is allowed under the automatic route and there are no FDI-linked performance conditions.

(iii) FDI in LLP is subject to the compliance of the conditions of LLP Act, 2008

 

 LLP engaged in following sectors are prohibited from accepting FDI

  1. Sectors eligible to accept 100% FDI under automatic route but subject to FDI linked performance conditions (such as Construction Development, Industrial Park, etc.)
  2. Sectors eligible for less than 100% FDI (Retail trade, Banking, Insurance, etc.)
  3. Sectors eligible for FDI under Government route (Satellite, FM Radio, Public Sector Bank, etc.)
  4. Agriculture/plantation activity and print media;
  5. Sectors prohibited for FDI (Lottery Business including Government/private lottery, online lotteries, etc., Gambling and Betting including casinos etc., Chit funds, Nidhi company, Trading in Transferable Development Rights (TDRs), Real Estate Business or Construction of Farm Houses)

 

Mode of payment for an eligible investor: Payment by an eligible investor towards capital contribution/profit share of LLPs will be allowed only by way of cash consideration to be received –
i) by way of inward remittance through normal banking channels; or
ii) by debit to NRE/FCNR(B) account of the person concerned, maintained with an AD Category – I bank.

NRE account – Non-resident external account.
FCNR account – Foreign currency non-resident account
AD Category bank- authorised dealers category bank.

 

Downstream investment:
An Indian company, having foreign investment, will be permitted to make downstream investment in an LLP only if both, the company as well as the LLP, are operating in sectors where 100% FDI is allowed under the automatic route and there are no FDI-linked performance related conditions. Onus shall be on the LLP accepting investment from the Indian Company registered under the provisions of the Companies Act. An LLP with FDI under this scheme will not be eligible to make any downstream investments in any entity in India.

 

PRICING AND REPORTING OF FDI IN LLPs