Foreign Director Investment allowed in Limited Liability Partnerships (LLPs), subject to some conditions. Everything that you need to know is listed herein:

Who is eligible to invest in LLP?

A person resident outside India (PROI) or an entity incorporated outside India

Who can’t invest in LLP?

  • Citizen/entity of Pakistan and Bangladesh or
  • SEBI registered Foreign Institutional Investor (FII) or
  • SEBI registered Foreign Venture Capital Investor (FVCI) or
  • SEBI registered Qualified Foreign Investor (QFI) or
  • SEBI registered Foreign Portfolio Investor

What are the eligibility conditions for LLP to accept FDI?

  • All LLPs operating in sector/activities where 100% FDI is allowed under Automatic Route are eligible.
  • All the LLPS engaged in the followings sectors are not allowed to accept FDI:

a) Sectors eligible to accept 100% FDI under automatic route but are subject to FDI-linked performance related conditions

b) Sectors eligible to accept less than 100% FDI under automatic route

c) Sectors eligible to accept FDI under Government Approval route

d) Agricultural/plantation activity & print media

e) Prohibited sectors/activities

What is eligible investment?

  • Amount contributed in the capital of LLP would be an eligible investment.

Note: Investment by way of ‘profit share’ will fall under the category of reinvestment of earnings.

What is the entry route?

  • Any kind (direct or indirect) of FDI in LLP will require prior Government/FIPB approval

Pricing of investment/Transfer?

  • FDI in an LLP shall be at a price more than or equal to the fair price as worked out with any valuation norm which is internationally accepted. A valuation certificate has to be issued by a Chartered Accountant or by a practicing Cost Accountant or by an approved valuer from the panel maintained by the Central Government.
  • Transfer of capital contribution/profit share from resident to non-resident– To  be at a consideration equal to or more than the fair price of capital contribution/profit share of an LLP
  • Transfer of capital contribution/profit share from non- resident to a resident- To be at a consideration which is less than or equal to the fair price of the capital contribution/profit share of an LLP.

What is the mode of payment?

Consideration can only be in cash through either:-

  • Normal banking channels; or
  • Debit to NRE/FCNR(B) account of the person concerned, maintained with an AD Category – I bank.

Reporting of FDI by LLPs?

  • LLPs shall submit Form FOREIGN DIRECT INVESTMENT-LLP(I), together with a copy of FIRC, Valuation Certificate and KYC report to concerned Regional Office of RBI through an AD Category – I bank within 30 days from the date of receipt of the inward remittance.
  • AD Bank should get the KYC report of the foreign investor from the overseas bank.
  • Disinvestment / transfer of capital contribution or profit share between a resident and a non-resident (or vice versa) shall be reported within 60 days from the date of receipt of funds in Form FOREIGN DIRECT INVESTMENT-LLP(II).

Downstream Investment in LLP?

  • An Indian company, having foreign investment can make downstream investment in LLP only if both are operating in sectors where 100% FDI is allowed under the automatic route, having no FDI-linked performance related conditions.
  • LLP with FDI can’t make any downstream investments in any entity in India.

Other Conditions to be complied by LLP ?

  • Note that an LLP having body corporate as Designated Partner, can accept FDI only if that body corporate is a Company registered under Companies Act. Also, Nominee of that Company should satisfy the residential status as per FEMA, 1999.
  • Designated partners will be responsible for all the aforementioned compliances and also liable for all penalties imposed on the LLP for their contravention.
  • Company with FDI can convert into LLP  only if all the aforementioned conditions (except mode of payment) are met and with the prior approval of FIPB/Government.
  • LLPs are not permitted to avail External Commercial Borrowings (ECBs).

Please click here to see the complete notification.

Author: Geetika Chandel, Associate at NovoJuris.

Disclaimer:  There are many details that the Act prescribes, please speak with your attorney for advice. This is not a legal opinion and should not be construed as one.