Limited Liability Partnership are the best way other than companies where the investment made can be withdrawn by the Designated Partners/Investors which had been invested by them as Capital Contribution or by way of withdrawal of Profits.

Since, in companies the capital contribution can be withdrawn by way of bye back of shares or by way reduction of capital which requires huge compliance work and which is time consuming. Hence, the trend of LLP Incorporation is increasing day by day. And hence, it is suitable for foreign investors also to invest by way of FDI and to re-patriate its money at any time without following huge burdon of compliances.

However, Since their inception, LLPs in India have been riddled with obtaining prior government approval for receiving FDI and facing blanket restrictions on downstream investments. However, on November 24, 2015, in line with the Indian Government’s “ease of doing business in India” campaign, the Department of Industrial Policy and Promotion (“DIPP”) issued Press Note 12 of 2015 to relax FDI investments

Moreover, The LLP Act 2008 allowed foreign nationals and foreign LLPs (Limited Liability Partnerships) to become a partner in LLP but as per the Foreign Exchange Management Act and regulations and rules, foreign investment in LLP was not allowed, therefore it was necessary to prescribe a regulatory policy for allowing Foreign Direct Investment (FDI). Which had been notified by the Reserve Bank of India vide Notification No. FEMA.385/2017-RB dated 03.03.2017.

Foreign Direct Investment

Now there a no. of questions regarding FDI in LLP like:

– Who can invest in LLPs.

– How the investments can be made in LLPs

– What reporting requirements are there to be made to RBI

We have tried to compile the above questions in brief which shall be helpful for clearing the doubts of investors in LLPs.

Who can Invest in LLPs:

RBI vide Notification No. FEMA.385/2017-RB dated March 03, 2017 issued Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) (Second Amendment) Regulations, 2017 to substitute sub-regulation 9 of regulation 5:

“A person resident outside India (other than a citizen of Pakistan or Bangladesh) or an entity incorporated outside India (other than an entity in Pakistan or Bangladesh), not being a Foreign Portfolio Investor or Foreign Institutional Investor or Foreign Venture Capital Investor registered in accordance with SEBI guidelines, may contribute foreign capital either by way of capital contribution or by way of acquisition / transfer of profit shares in the capital structure of an LLP under Foreign Direct Investment, subject to the terms and conditions as specified in Schedule 9”.

So from above, we can say that A person resident outside India (other than a citizen of Pakistan or Bangladesh) or an entity incorporated outside India (other than an entity in Pakistan or Bangladesh), may contribute foreign capital either by way of capital contribution or by way of acquisition/transfer of profit shares in the capital structure of an LLP.

However, Foreign Portfolio Investor or Foreign Institutional Investor or Foreign Venture Capital Investor registered in accordance with SEBI guidelines are not eligible to contribute foreign capital in the LLP.

However, FDI in LLPs is permitted, subject to the following conditions:

FDI is permitted under the automatic route in LLPs operating in sectors / activities where 100% FDI is allowed through the automatic route and there are no FDI linked performance conditions. For ascertaining such sectors, reference shall be made to Annex B to Schedule 1 of these Regulations.

An Indian company or an LLP, having foreign investment, will be permitted to make downstream investment in another company or LLP engaged in sectors in which 100% FDI is allowed under the automatic route and there are no FDI linked performance conditions. Onus shall be on the Indian company / LLP accepting downstream investment to ensure compliance with the above conditions.

So we can conclude the above as follows:


LLP engaged in the following sectors/activities shall not be eligible to accept FDI:

1. Sectors eligible to accept 100% FDI under automatic route but which are subject to FDI-linked performance related conditions (for example minimum capitalization norms applicable to ‘Non-Banking Finance Companies’ or ‘Development of Townships, Housing, Built-up infrastructure and Construction-development projects’, etc.)

2. Sectors eligible to accept less than 100% FDI under automatic route;

3. Sectors eligible to accept FDI under Government Approval route

4. Agricultural/plantation activity and print media

5. Sectors not eligible to accept FDI at all which are as follows:

(i) Business of chit fund, or

(ii) Nidhi company, or

(iii) Agricultural or plantation activities, or

(iv) Real estate business, or construction of farm houses, or

(v) Trading in Transferable Development Rights (TDRs).

(vi) Lottery Business including Government /private lottery, online lotteries, etc.

(vii) Gambling and Betting including casinos etc.

(viii) Manufacturing of Cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes

(ix) Activities / sectors not open to private sector investment e.g. Atomic Energy and Railway Transport (other than Mass Rapid Transport Systems).

NOTE: Issue/transfer/pricing/valuation of shares shall be in accordance with applicable SEBI/RBI guidelines.


Contribution to the capital of an LLP would be an eligible investment under the scheme.

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

Payment by an investor towards capital contribution in LLPs shall be made:

(i) by way of inward remittance through banking channels; or

(ii) by debit to NRE / FCNR(B) account of the person concerned, maintained with an AD Category – I bank in accordance with Foreign Exchange Management (Deposit) Regulations, 2016, as amended from time to time.


1. Annual Return on Foreign Liabilities and Assets:LLP which has received investment by way of capital contribution in the previous year(s) including the current year, shall submit form FLA to the Reserve Bank on or before the 15th day of July of each year.

2. Form FDI- LLP (I):A Limited Liability Partnerships (LLPs) receiving amount of consideration for capital contribution and acquisition of profit shares is required to submit a report in Form Foreign Direct Investment-LLP (I) within 30 days from the date of receipt of the amount of consideration. The form shall be accompanied by: (a) copy/ies of the FIRC/s evidencing the receipt of the remittance. (b) KYC report in respect of the foreign investor in the format specified in.

3. Form FDI- LLP (II):The LLPs shall report disinvestment/ transfer of capital contribution or profit share between a resident and a non-resident (or vice versa) within 60 days from the date of receipt of funds in Form Foreign Direct Investment-LLP(II).

VARIOUS RESTRICTIONS WITH RESPECT TO FDI INVESTMENT IN LLPS: Despite the allowance of FDI, the LLP structures in India still face some restrictions.

1. Foreign Capital participation in LLPs is allowed only by way of cash considerations, received by inward remittance, through normal banking channels, or by debit to NRE/FCNR account (maintained with an authorized dealer/authorized bank) of the person concerned.

2. Prior governmental permission is required to make non-cash/intangible contribution towards the capital of an LLP.

3. The government has also not permitted Foreign Institutional Investors (FIIs) and Foreign Venture Capital Investors (FVCIs) to invest in LLPs.

4. LLPs are also not permitted to avail External Commercial Borrowings (ECBs).

Conclusion: We can conclude from the above, that although there are some restrictions and shortcomings in FDI in LLPs, but still it is a growing sector for the investors to invest since it gives them the free hand to withdraw the money and to re-patriate the same into their country which is otherwise not possible in Proprietorships and Partnerships.

Disclaimer: The author is based at Jalandhar and is a practicing company Secretary deal in Secretarial and FDI Matters and also a Certified CSR Professional who deals in matters pertaining to Corporate Social Responsibility. The information contained in this write up, as provided by the author, is to provide a general guidance to the intended user. The information should not be used as a substitute for specific consultations. Authors recommend that professional advice is sought before taking any action on specific issues.

The author can be however contacted for further clarification at 99145-58709 or via mail at [email protected]

Author Bio

Qualification: CS
Company: Mohit Saluja & Associates
Location: JALANDHAR, Punjab, IN
Member Since: 13 May 2017 | Total Posts: 63
Hi, This is CS Mohit Saluja, Graduate in Law and Post Graduate in Commerce & a Fellow member of the Institute of Company Secretaries of India, New Delhi, having more than 10 years of stringent experience in the field of Secretarial and RBI Matters, Company Law Board (CLB), Regional Director (RD) View Full Profile

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