Background – Cabinet Committee on Economic Affairs of the Government of India have decided to permit Foreign Direct Investment (FDI) in Limited Liability Partnership (LLP) which are formed under the Limited Liability Partnership Act, 2008 [LLP Act]. Presently, FDI is allowed in Indian companies. It is allowed in a firm or a proprietary concern, subject to certain conditions. FDI in a trust is also allowed with prior Government approval, provided it is a Venture Capital Fund (VCF) registered with Securities and Exchange Board of India [SEBI]. LLP Act permits setting up of hybrid entity, which has the features of a body corporate and a partnership for the purpose of undertaking business in India.
FDI in LLP
To begin with, FDI in LLPs will be implemented with the „open‟ sectors. Following conditions are specified for FDI in LLP:
1. LLPs with FDI will be allowed in those sectors / activities where 100% FDI is allowed through the automatic route and there are no FDI-linked performance related conditions. Such FDI in LLP will be through the Government approval route.
2. LLPs with FDI will not be eligible to make any downstream investments.
3. LLPs with FDI will not be allowed to operate in agricultural / plantation activity, print media or real estate business.
Funding of LLPs
Ownership and management of LLPs
Conversion of Company with FDI into LLP
Existing company with FDI can be converted into LLP with the prior approval of FIPB / Government.
DPs will be responsible for compliance with the above conditions and liable for all penalties imposed on the LLP for their contravention.
The proposal would provide an additional alternative for structuring FDI in India in sectors which are open to 100% FDI on automatic basis.