Note on FDI allowed in LLP

The Cabinet Committee of Economic Affairs (CCEA) has today approved Foreign Direct Investment (FDI) in Limited Liability Partnership (LLP) firms. The FDI in LLP has been permitted subject to the following conditions:
-FDI upto 100% will be permitted with the prior approval of Foreign Investment Promotion Board (FIPB) for the sectors falling under 100% automatic route.
-Foreign investment shall not be allowed in LLP engaged in the following:

  • Where FDI-linked performance related condition is attached (minimum capitalization, lock-in period);
  • Sectors which are prohibited;
  • Sectors which are restricted with caps; and
  • Sectors which are under the FIPB approval route.

-LLPs having foreign investment would not be eligible to make any downstream investment.
-Indian companies having foreign investments would be eligible to make downstream investment in LLPs, only if the Indian company as well as LLP are operating in 100% automatic route sector and there are no FDI linked performance related conditions.
-Contribution in the capital of the LLP should be through inward remittance or by debit to NRE/FCNR account of the designated partner
-Investment by FIIs and FVCI in LLP is not permitted, even LLP would not be eligible to raise External Commercial Borrowing.
-In case LLP has a body corporate as a partner, companies registered under the Companies Act can only become partner in LLP.
-The definition of “persons resident in India” as contained in FEMA would be applicable instead of that given in the LLP Act.
-Conversion of a company into LLP would be allowed with prior FIPB approval
– The partners would be responsible for compliance and would be held liable for all penalties for any contravention
As the proposal has been approved by the CCEA, the Department of Policy & Promotion will introduce the policy changes in the form of a Press Note.

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