Foreign Direct Investment in Limited Liability Partnership (LLP)

Limited Liability Partnership (LLP) is a partnership formed and registered under the Limited Liability Partnership Act, 2008. The Limited Liability Partnership is a hybrid structure having the advantage of Limited Liability Company (“LLC”) and operational flexibility of a partnership.

Some of the significant advantages are as below:

1. Simpler and cost-effective process of forming Limited Liability Partnership in comparison to Limited Liability Company;
2. The Limited Liability Partnership can enter into contracts and own a property in its name, therefore limiting the liability of its partners subject to their agreed capital contribution.
3. Unlike partnership firms, Limited Liability Partnership can raise the funds from private equity and financial institution within India or outside India.
4. Limited Liability Partnership has fewer compliances in comparison to Limited Liability Company such as no mandatory requirement for account auditing unless contribution of LLP exceeds INR 25 lakhs or annual turnover exceeds INR 40 lakhs.
5. The rights, responsibilities and profit-sharing between the partners are governed as per the mutual agreement.

Foreign Direct Investment in Limited Liability Partnership:

The government of India issued Press Note 12 of 2015 to relax Foreign Direct Investment in Limited Liability Partnership LPPs subject to the following conditions:

1. Foreign Direct Investment is permitted under the automatic route in Limited Liability Partnership operating in sector/activities where 100% Foreign Direct Investment is allowed through the automatic route and there is no FDI-linked performance condition.
2. An Indian company or a Limited Liability Partnership, having foreign investment, will be permitted to make downstream investment in another company or Limited Liability Partnership in a sector in which 100% Foreign Direct Investment is allowed through the automatic route and there is no FDI-linked performance condition.
3. Foreign Direct Investment in Limited Liability Partnership is subject to the compliances of the Limited Liability Partnership Act 2008.

Pricing Requirement:

Investment in a Limited Liability Partnership either by way of capital contribution or by way of acquisition/ transfer of profit shares, should not be less than the fair price worked out as per any valuation norm which is internationally accepted/ adopted as per market practice and a valuation certificate to that effect should be issued by a Chartered Accountant or by a practising Cost Accountant or by an approved valuer from the panel maintained by the Central Government.

Mode of Payment:

Payment by an investor towards the capital contribution of an LLP should be made by way of inward remittance through banking channels or out of funds held in NRE or FCNR(B) account maintained under the regulation.

Reporting of Foreign Direct Investment in Limited Liability Partnership:

1. The Limited Liability Partnership receiving Foreign Direct Investment in the form of capital contribution shall submit a report within 30 days from the date of receipt of funds.
2. Any disinvestment or transfer of capital contribution or profit share between a resident and non-resident or vice versa shall be reported to the Reserve Bank of India within 60 days from the date of transfer.