Foreign Direct Investment in LLP

Foreign Direct Investment (FDI) under the automatic route was allowed only in Private Limited Company and Limited Company.Limited Liability Partnership (LLP) requires prior Government Approval, making the foreign investment in LLP- a cumbersome process.

However, in an effort to improve the ease of doing business and to make India a world-class investment destination, the Government of India has allowed 100% FDI in LLP under the automatic route.

Here is a brief on the various implications of allowing 100% FDI in LLP under the automatic route.

FDI in LLP under the Automatic Route

Post changes to FDI regulations on 10^th of November 2015, 100% FDI in LLP is now permitted under the automatic route. For those businesses operating in activities/sectors where 100% FDI is allowed through the automatic route and there are absolutely no FDI-linked performance conditions can opt for 100% FDI.

Also to allow smooth FDI in LLP, all the terms like “ownership”, “control” and “internal accruals” have been clearly defined.

Also, in addition, the LLPs will also be allowed to make downstream investment in another company or LLP in sectors in which 100% FDI is allowed under the automatic route and there are no FDI-linked performance conditions.

Implications for the NRIs and foreign Nationals starting LLP

With the proposed relaxation of FDI norms for the purpose of investment in LLP in India, the NRIs and Foreign Nationals can choose to register as LLP if the annual sales turnover will be less than 40 lakhs and the capital will be less than 25 lakhs.

LLPs that satisfy the above condition would not appoint an auditor or conduct Board Meetings- will all contributes to making, starting and managing of an LLP easy for the NRIs and Foreign Nationals.

FDI Reforms and Liberalizations announce in the month of November 2015

In addition to the reforms to FDI in an LLP, the Government of India has also announced different other FDI reforms and liberalisations in order to boost the foreign investment in the country.

The announced changes affect the FDI relating to:

• Limited Liability Partnerships
• Investment by companies owned and controlled by Non-Resident Indians (NRIs)
• Establishment and transferring of ownership and control of the Indian companies
• Agriculture and Animal Husbandry
• Plantation
• Mining and mineral separation of titanium bearing the minerals and ores, its value addition and integrated activities
• Defense
• Broadcasting Sector
• Civil Aviation
• Increase of sectoral cap
• Construction development sector
• Cash and Carry Wholesale Trading/ Wholesale Trading (including sourcing from MSEs)
• Single Brand Retail Trading and Duty-free shops
• Banking in Private sector
• Manufacturing Sector

FDI by entities owned and controlled by NRIs

Presently, Non-Resident Indians (NRIs) have special dispensation for the investment in the construction development and civil aviation sectors. Moreover, the investments which are made by Non-Resident Indians under Schedule 4 of FEMA (Transfer or issue of Security by Persons Resident outside India) Regulations is deemed to be a domestic investment at par with the amount of investment made by residents.

Moreover, investment by individual NRIs in their individual capacity would be restricted. Thus, in order to attract large investments which are possible through incorporated entities only; the special privileged provided to NRIs has not been extended to companies, partnerships and trusts which are incorporated outside India and are owned and controlled by NRIs.

Hence, any of the investment by a for-profit or not-for-profit legal entity that is owned and controlled by NRIs will be treated at par with NRIs for the purpose of investment in India.