FDI allowed in LLP under Automatic Route

Foreign Direct Investment (FDI) under the automatic route was allowed only in Private Limited Company and Limited Company (Know about FDI in Company). Limited Liability Partnership (LLP) required prior Government Approval, making foreign investment in LLP - a cumbersome process. However, in an effort to improve ease of doing business and to make India a world-class investment destination, the Government has allowed 100% FDI in LLP under the automatic route. In this article, we look at the implications of allowing 100% FDI in LLP under the automatic route.

FDI in LLP under the Automatic Route

Post changes to FDI regulations on 10th, November 2015, 100% FDI in LLP is now permitted under the automatic route. 100% FDI in LLP is allowed for businesses operating in sectors/activities where 100% FDI is allowed, through the automatic route and there are no FDI-linked performance conditions. Further, the terms ‘ownership and ‘control’ and 'internal accruals' with reference to LLPs have also been defined - allowing for smooth FDI in LLP.

In addition, LLPs will also be allowed to make downstream investment in another company or LLP in sectors in which 100% FDI is allowed under the automatic route and there are no FDI-linked performance conditions.

Implications for NRIs and Foreign Nationals Starting LLP

With the proposed relaxation of FDI norms for investment in LLP in India, NRIs and Foreign Nationals can choose to register as LLP if the annual sales turnover will be less than Rs.40 lakhs and the capital will be less than Rs.25 lakhs. LLPs that satisfy the above condition would not have to appoint an Auditor or conduct Board Meetings - making starting and managing an LLP easy for NRIs and Foreign Nationals.

FDI Reforms and Liberalizations announced in November 2015

In addition to the reforms to FDI in LLP, the Government of India has also announced various other FDI reforms and liberalizations to boost foreign investment in the country. The announced changes affect FDI relating to:

Limited Liability Partnerships
Investment by companies owned and controlled by Non-Resident Indians (NRIs)
Establishment and transfer of ownership and control of Indian companies
Agriculture and Animal Husbandry
Plantation
Mining and mineral separation of titanium bearing minerals and ores, its value addition and integrated activities
Defence
Broadcasting Sector
Civil Aviation
Increase of sectoral cap
Construction development sector
Cash and Carry Wholesale Trading / Wholesale Trading (including sourcing from MSEs)
Single Brand Retail Trading and Duty-free shops
Banking-Private Sector
Manufacturing Sector

FDI by Entities Owned & Controlled by NRIs

Currently, Non-Resident Indians (NRIs) have special dispensation for investment in the construction development and civil aviation sector. Further, the investment made by Non-Resident Indians under schedule 4 of FEMA (Transfer or Issue of Security by Persons Resident Outside India) Regulations is deemed to be domestic investment at par with the investment made by residents. However, investment by individual NRIs in their individual capacity would be restricted. Therefore, to attract larger investments, which are possible through incorporated entities only, the special privileges provided to NRIs has now been extended to companies, trusts and partnership firms, which are incorporated outside India and are owned and controlled by NRIs. Hence, any investment by a for-profit or not-for-profit legal entity that is owned and controlled by NRIs will be treated at par with NRIs for investment in India.

Starting an LLP?

If you are an NRI or Foreign National and would like to start an LLP, visit IndiaFilings.com. IndiaFilings offer LLP registration for NRIs and Foreign Nationals starting from just Rs.8000/-. Click here to know more.

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