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).
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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.