Limited Liability Partnership is a business entity which is registered with the Ministry of Corporate Affairs (MCA), it is also a body corporate and can do any business activities which are legal in India. The business includes trading, manufacturing, service provider, professional services etc. but certain activities cannot be adopted without prior approval of the relevant authorities. The activities like finance, investment, insurance, stock exchange, architect, banking, merchant banker, NBFC, chit fund etc. cannot be started without the prior approval of the relevant authority.

At the time of registration, the Limited Liability Partnership (LLP) has to choose the industrial code as per NIC-2004 and the industrial code is selected according to the business activities of the LLP. Once the industry code has been chosen and business activity has been furnishing to the ROC the LLP cannot run any other activity without prior alteration of the LLP agreement and approval of the ROC for the same.

The main question is can an LLP do a financial activity like banking or NBFC?

The answer is an LLP cannot operate a banking business during its whole tenure because to run a banking company there must be a company registered under the companies act.

For other financial activity a prior approval of RBI is required and if an LLP wants to run Non- Banking Financial Activity then it must take prior approval of RBI before starting the business.

For Non-Banking Activities please follow the following points:

As per section 45 I (a) of the RBI Act, 1934 “business of the financial institution” means carrying on the business of financial institution referred to clause (c) and includes the business of non-banking financial company referred to in clause (f)

According to section 45-I (e) of the RBI Act, 1934 “non-banking financial institution means company, corporation or co-operative society.

Section 45-I (f) of the RBI Act, 1934 a non-banking financial company means-

1. A financial institution which is the company

2. A non-banking financial institution which is a company and its main business is receiving of deposit, under any scheme or arrangement or in any other manner or lending in any manner

3. Such other non-banking institution as the bank may, with the prior approval of Central Government and by notification in the official gazette.

What are the requirements of RBI approval?

RBI approves the companies which are registered under the companies act and desiring to run non-banking financial activity or falling under section 45-I(a) of the RBI Act, 1934 should comply with the following:

1. A company must be following under section 2(20) of the companies act, 2013 or registered under any other previous company law

2. The minimum net owned fund should be Rs. 200 Lakh (2 Crores)

A Nidhi Company can run its business as a non-banking financial institution/ company without prior approval of RBI, but it can run its business between its members only with few restrictions as specified under Nidhi Rules, 2014

As per the above provision, it is concluded that the RBI approves non-banking financial institutional activities to the companies which are registered under the company act, after fulfilment of certain conditions. Hence an LLP cannot register itself as an NBFC for investment or financing activities as per RBI rule.

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