Limited Liability Partnership (“LLP”) Act allows Indian nationals, body corporate, foreign nationals, companies incorporated outside India, as well as foreign LLPs to become partners in LLP.
The Government of India, by a Press Note issued in April 2011, took a precautionary approach by allowing Foreign Direct Investment (FDI) in LLP subject to certain conditions. Though the Press Note was issued in April 2011, RBI allowed FDI under prior Government ‘approval route’ only in 2014.
FDI in LLP: 2014
Pursuant to A.P. (DIR Series) Circular No. 123 of 2014,LLPs were eligible to accept FDI in permitted sectors and limited to sectoral cap, only with prior approval of Government/ RBI. Though foreign partners were allowed under the Act, subscription to capital from such partners was an issue.
FDI in LLP: 2015 and now
Amendments were made to the Consolidated FDI policy of 2015 through press note 12 of 2015. Accordingly:
- FDI is permitted under the automatic route in LLPs operating in sectors/activities where 100% FDI is generally allowed and there are no FDI-linked performance conditions.
- LLP having foreign investment, is also permitted to make downstream investment in another company or LLP in sectors where 100% FDI is allowed under the automatic route and there are no FDI-linked performance conditions. Further, such LLP should have ownership and control in the downstream LLP as follows:
- Ownership: A LLP is considered to be owned by resident Indian citizens if more than 50% of the investment is contributed by resident Indian citizens or entities and such resident Indian entities have a majority of the profit share.
- Control: The investing LLP should have the right to appoint a majority of the designated partners and such designated partners have control over all the policies of the downstream LLP.
- FDI in LLP is subject to the compliance of the conditions of LLP Act, 2008.
Repatriation of capital contribution is permissible automatically, however, applicable pricing guidelines and reporting requirements should be followed.