Foreign Direct Investment in Limited Liability Partnership

Limited Liability Partnership (“LLP”) is a hybrid entity with advantage of a company and operational flexibility of a partnership. The concept was introduced by the Ministry of Corporate Affairs through Limited Liability Partnership Act, 2008 on 9^th January, 2009.

Setting up of LLP in India has various advantages. Some of the significant advantages are as follows:

contribution by the partners may consist of tangible, movable or immovable or intangible property or other benefit including money, promissory notes, and other agreements to contribute cash or property and contracts for services performed or to be performed.
No requirement of holding quarterly board meetings.
Distribution of profits to partners of the LLP is exempt from tax.
No withholding tax on distribution made to partners by LLP.
Non-applicability of Corporate Social Responsibility (CSR) provisions.

FOREIGN DIRECT INVESTMENT IN LLP
Foreign investment is permitted under the automatic route in LLP operating in sectors/activities where 100% Foreign Direct Investment (FDI) is allowed through the automatic route and there are no FDI-linked performance conditions. As of now, payment by an eligible foreign investor towards capital contribution/profit share of LLPs is allowed only by way of cash consideration in terms of the Foreign Exchange Management Act, 1999.

In addition to the above, LLPs receiving FDI are also allowed to make downstream investment in other limited liability company or LLP in those sectors where 100% FDI is permitted through automatic route.

REPORTING REQUIREMENTS

An LLP receiving FDI in the form of capital contribution shall submit a report within a period of 30 days from the date of receipt of funds in form FDI-LLP (I) through its Authorised Dealer Bank to the regional office of the Reserve Bank of India (RBI) under whose jurisdiction the registered office of the LLP is situated.
Any disinvestment or transfer of capital contribution or profit share between a resident and non-resident or vice versa shall be reported to RBI through Authorised Dealer Bank within a period of 60 days from the date of transfer in form FDI-LLP (II).

Though, External Commercial Borrowings are not allowed in LLP in India, however, FDI norms relating to LLP are considerably liberalised as compared to investment in Indian companies.

Comments (5)

Ajay says on 23 May 2018

Thanks for the update

Shiva Kumar says on 18 Jun 2018

Sir,We are a listed company in India try to set a JV in manufacturing sector with a MNC. We wish take the LLP route as there will be no DDT and Withhoding tax on dividends to be paid to foreign investors.We propose to raise some loan funds in India also.Due you foresee any issues for LLP vs limited company.Shiva

hemant says on 01 Oct 2019

We have a LLP which has received FDI in 2016. Necessary reporting was done through AD and we received the UIN.Firm however has made losses and is non operational since more than 1 year.We wish to close down the LLP. The Foreign Investor is also closing down their operations.What is the process required to be followed for the same and how do we intimate the RBI. Bank account has also been closed

- Singhania Partners says on 03 Oct 2019
  
  Hi Hemant,The LLP will be closed down as per the procedure provided in the Limited Liability Partnership Act, 2008 and Rules made thereunder. Further, the LLP would be required to intimate RBI as per the provisions of the Foreign Exchange Management Act, 1999.If you need any assistance in this regard, kindly feel free to revert.
  
KASTURI says on 01 Oct 2021

Sir, We are opening an LLP for agricultural produce. 3 partners are Resident. 4th one non resident. His capital contribution to LLP what are the legal formalities that firm should comply to accept the same? As an LLP can we accept Forign Grants? What are the legal side of the same?