Limited Liability Partnerships have been a popular business vehicle in countries such as India, United Kingdom, United States of America, Australia, Singapore etc. as it combines features of a company and negative cons of a partnership firm.
In India, the Limited Liability Partnership Act, 2008 was notified in March 2009. The LLP Act 2008 empower foreign nationals and foreign LLP’s to allow LLPs registration in India. But the same time it was not supported by Foreign Exchange Management Act, 1999 (FEMA). In the year 2011, the regulatory policy for Foreign Direct Investment was amended and 100% FDI (Foreign Direct Investment) was allowed in LLPs via approval route.
FDI through Automatic Route
Though Limited Liability Partnership form of doing business was popular among Indian residents but foreign residents chose to abstain from for obvious reasons of requisite of approval even where 100% FDI (Foreign Direct Investment) was allowed under automatic route (in case of Private limited company). It takes four years to realize the need to refine provisions of LLP Act. The Indian Government in the year 2015, permitted FDI (Foreign Direct Investment) up to 100% through Automatic route in Limited Liability Partnership which are functioning in sectors where 100% FDI is allowed through Automatic route.
New FDI Regulations
The Indian Government, in its bid to encourage ease of business in India, has again updated the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2017 [hereinafter referred to as New Foreign Direct Investment Regulations]. The New Foreign Direct Investment Regulations have simplified many aspects concerning Foreign Direct Investment, such as downstream investment and transfer of such Foreign Direct Investment in Companies and Limited Liability Partnership alike.
Provisions for Foreign Direct Investment (FDI) in LLPs as given in New FDI Regulations have been summarized below:
1. 100% Foreign Direct Investment Permitted:
A Nonresident outside India can into the capital of an Limited Liability Partnership operating in sectors where 100% FDI is permitted under automatic route and no FDI linked performance conditions are applicable.
2. Investment by way of “profit share”:
As per the New FDI Regulations, investment by way of “profit share” shall be classified as reinvestment of Incomes.
3. Conversion of Company into Limited Liability Partnership:
A Company having foreign investment can be converted into Limited Liability Partnership under automatic route provided:
- It is engaged in a sector where 100% FDI is allowed under automatic route
- There are no Foreign Direct Investment linked performance situations prescribed
4. Conversion of Limited Liability Partnership into Company:
An Limited Liability Partnership having FDI can be converted into a Company under automatic route provided:
- It is engaged in a sector where 100% FDI is permitted under automatic route
- There are no Foreign Direct Investment linked performance situations prescribed
5. Valuation:
- Investment by way of capital contribution or by way of acquisition / transfer of profit shares to be calculated on the basis of fair price valuation.
- A Chartered Accountant or Practicing Cost Accountant or Valuer on the panel of the Central Government to issue a valuation certificate to that effect.
- Fair price valuation to be carried out as per internationally accepted valuation methodology.
6. Consideration for transfer of capital contribution / profit share:
The consideration to be worked out as follows:
| Transfer from | Transfer to | Consideration |
| Person resident in India | Person resident outside India | Consideration should not be less than the fair price of capital contribution |
| Person resident outside India | Person resident in India | Consideration should not be more than the fair price of the capital contribution |
7. Reporting of investment in and transfer of capital contribution / profit shares:
| Purpose | Form Name | To be filed with | Timeline |
| To report receipt of amount of consideration for capital contribution and acquisition of profit shares | LLP (I) | Regional Office of RBI | Within 30 days from the date of receipt of consideration |
| To report disinvestment / transfer of capital contribution or profit share between a resident and a non-resident and vice versa. | LLP (II) | Authorised Dealer bank | Within 60 days from the date of receipt of funds. |
Please note that above mentioned forms have been integrated into Single Master Form (SMF) w.e.f. 1st September, 2018. To read more about the same, please visit Single Master Form (SMF) And The New Filing Platform FIRMS