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Limited Liability Partnerships (LLP) introduced in India through the Limited Liability Partnership Act 2008 has become a popular form of business entity in India owing to its simplified procedures for registration and maintenance. LLPs allow many of the small and medium-sized to enjoy a separate legal entity, improve transferability and provide its promoters with limited liability protection. Therefore, there is tremendous interest among small business owners and service providers to register their business as an LLP. In this article, we look at the regulations and procedure for FDI in LLP.

Overview of FDI in LLP

With the Indian population currently spread across the globe and growing interest among foreigners to get a foothold into the Indian market, there is a lot of interest for Foreign Direct Investment (FDI) in LLP. Similar to FDI in Private Limited Company, it determines the policy for FDI in LLP by the yearly FDI Circular issued by the Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce and Industry.

Changes to FDI Norms pertaining to LLP in November 2015

Post changes to FDI regulations on 10th, November 2015, where it allows 100% FDI in LLP under the automatic route. The businesses operating in sectors/activities can get 100% FDI, through the automatic route, and there are no FDI-linked performance conditions. Further, the terms ‘ownership and ‘control’ and ‘internal accruals’ with reference to the definitions of LLPs – allowing for smooth FDI in LLP.

In addition, LLPs can also make downstream investment in another company or LLP in sectors in which it permits 100% FDI under the automatic route, and there are no FDI-linked performance conditions.

(Click here to read the updated article containing the newest regulation pertaining FDI in LLP).

Erstwhile FDI in LLP Procedure

FDI in LLP Procedure

As per the FDI Circular issued on 17.4.2014 by the DIPP, FDI in LLP will be allowed subject to the following conditions:

  • The Government approval route allows the FDI in LLP.
  • The Government permits the FDI in LLP only for LLP entities operating in sectors/activities where it allows 100% FDI, through the automatic route for a Private Limited Company;
  • FDI in LLP will be allowed only when there are no FDI-linked performance conditions.

In addition to the above conditions, FDI in LLP are also subject to the following restrictions:

  • LLPs with FDI cannot operate in agricultural/plantation activity, print media or real estate business.
  • An Indian company, having FDI, can make downstream investment in an LLP only if both the company, as well as the LLP- are operating in sectors where it allows 100% FDI, through the automatic route and there are no FDI-linked performance conditions.
  • LLPs with FDI will not be eligible to make any downstream investments.
  • Foreign Capital participation in LLPs will be allowed only by way of cash consideration, received by inward remittance, through normal banking channels or by debit to NRE/FCNR account of the person concerned, maintained with an authorized dealer/authorized bank.
  • Investment in LLPs by Foreign Portfolio Investors (FPIs) and Foreign Venture Capital Investors (FVCIs) will not be permitted.
  • LLPs cannot avail External Commercial Borrowings (ECBs).
  • In case the LLP with FDI has a body corporate that is a designated partner or nominates an individual to act as a designated partner in accordance with the provisions of Section 7 of the LLP Act, 2008, such a body corporate should only be a company registered in India under the Companies Act, 1956 and not any other body, such as an LLP or a trust.

FDI in LLP – Designated Partner Requirement

In addition to the above requirements and restriction for FDI in LLP, an LLP proposing to have FDI must also satisfy the following requirement with respect to the Designated Partner:

  • LLPs proposing to have FDI must have a designated partner “resident in India”, as defined under the ‘Explanation’ to Section 7(1) of the LLP Act, 2008. The designated partner must also satisfy the definition of “person resident in India”, as prescribed under Section 2(v)(i) of the Foreign Exchange Management Act, 1999.
  • Further, the designated partners will be responsible for compliance with all the above conditions and also liable for all penalties imposed on the LLP for their contravention, if any.

FDI in LLP vs FDI in Private Limited Company

FDI is allowed for a Private Limited Company under the automatic route for many of the sectors in India, wherein only a post-investment filing needs to be made with the RBI. On the other hand, FDI in LLP requires prior Government approval. Therefore, it is advisable for entrepreneurs proposing to have FDI in their business at any point of the business life-cycle to opt for registration of a private limited company.

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Illustration of FDI in LLP vs Private Limited Company