Can LLP do investment activites

LLP Act:

As per section 2(e) of the Limited Liability Act, 2008(LLP Act), “business” includes every trade, profession, service and occupation;

In Form 2 for Incorporation Document and Subscriber’s Statement:

Business activities to be carried out by the LLP on incorporation:

(Note: In case business activities consists of banking, insurance, venture capital, mutual fund, stock exchange, asset management, architect, merchant banker, securitization and reconstruction, chit fund, and non-banking financial activities, a copy of in principal approval of the regulatory authority should be attached)

6 * Based on business activities, main business of industrial activities of the LLP as per NIC-2004

Description of Main division of industrial activities

It seems that investment activity which is one of the non banking financial activities, hence in principal approval from RBI is required, if LLP proposed to do such activity.

RBI Act:

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

As per section 45I(e) of the Reserve Bank Act, “non-banking institution” means a company, corporation or co-operative society;

As per section 45I(c) of the Reserve Bank Act, “financial institution” means any non-banking institution which carries on as its business or part of its business any of the following activities, namely :—

1. the financing, whether by way of making loans or advances or otherwise, of any activity other than its own;

2. the acquisition of shares, stock, bonds, debentures or securities issued by a Government or local authority or other marketable securities of a like nature; 

As per section 45I(f) of the RBI Act, 1934,

(f) ‘‘non-banking financial company’’ means–

(i) a financial institution which is a company;

(ii) a non-banking institution which is a company, and which has as its principal business the receiving of deposits, under any scheme or arrangement or in any other manner, or lending in any manner;

(iii) such other non-banking institution or class of such institutions, as the Bank may, with the previous   approval of the Central Government and by notification in the Official Gazette, specify;]

45-IA. Requirement of registration and net owned fund.

(1) Notwithstanding anything contained in this Chapter or in any other law for the time being in force, no non-banking financial company shall commence or carry on the business of a non-banking financial institution without–

(a) obtaining a certificate of registration issued under this Chapter; and

(b) having the net owned fund of twenty-five lakh rupees or such other amount, not exceeding two hundred lakh rupees, as the Bank may, by notification in the Official Gazette, specify.

As per FAQs issued by RBI in regards of NBFC it is clarified:

• What are the requirements for registration with RBI?

A company incorporated under the Companies Act, 1956 and desirous of commencing business of non-banking financial institution as defined under Section 45 I(a) of the RBI Act, 1934 should comply with the following:

1. it should be a company registered under Section 3 of the companies Act, 1956 (Now Companies Act, 2013)

2. It should have a minimum net owned fund of 200 lakh. (The minimum net owned fund (NOF) required for specialized NBFCs like NBFC-MFIs, NBFC-Factors, CICs is indicated separately in the FAQs on specialized NBFCs).

• There are some entities (not companies) which carry on activities like that of NBFCs. Are they allowed to take deposits? Who regulates them?

Any person who is an individual or a firm or unincorporated association of individuals cannot accept deposits except by way of loan from relatives, if his/its business wholly or partly includes loan, investment, hire-purchase or leasing activity or principal business is that of receiving of deposits under any scheme or arrangement or in any manner or lending in any manner.

There is specific requirement in RBI Act that only the companies registered u/s. 3 of the Companies Act,2013 can get registered with RBI to do any activity of non-banking institution.

As per the above provisions and the notification issued by RBI, it can be said that only a company which is registered under section 3 of Companies Act,2013 is eligible to get registered with RBI for purpose of running business of Investments under NBFC. Therefore, LLP cannot be registered as NBFC for purpose of carrying investment activities as per RBI.