Introduction
Limited liability partnership (LLP) was introduced by Ministry of corporate affairs of India in 2008 as a tool for small businesses who want to have a corporate status and need flexibility in compliance requirements in comparison to companies registered under the Companies Act. However, initially the Foreign Direct Investment (FDI) in LLP’s was permitted only under the approval route and there were restrictions in obtaining external commercial borrowings (ECBs).
Later, in 2015 the Reserve Bank of India (RBI) allowed FDI under automatic route for LLP’s in some sectors where are no FDI linked performance conditions. However, there are still concerns about the restrictions on external commercial borrowings and conversion of existing company into an LLP through FDI was allowed only under the approval route.
Highlights
RBI via its FEMA notification dated 3rd March 2017 have amended Schedule 9 to FEMA notification no. FEMA 20/2000 – RB to make appreciable changes in existing scenario. We shall discuss the highlights of this newly issued notification in the coming paragraphs:
- An existing company can now be converted into LLP through FDI under automatic route in sectors where 100% FDI is permitted under the automatic route and subject to the condition that are zero FDI linked performance conditions.
- The foreign companies can now be appointed as Designated Partners (DPs) in LLPs after removal of mandatory condition which only allowed body corporate registered under Indian Companies Act to appoint a DP in LLP.
- The new amendments also waive the residency requirements to be fulfilled by individual DP’s of LLP that has received FDI. Now, the individual DP’s will only require to fulfill the residency requirements mentioned under the LLP Act.
- The LLP’s which have received FDI are mandatorily required to submit reports to the RBI in their annual return on foreign assets and liabilities by 15th Day of July every year.
Conclusion
The new notification will help Indian businesses to procure desired funds through FDI and boost the economic growth. Foreign entities looking for expansion may also find this a welcome step to have their presence in India in the form of LLP’s with relaxed provisions for FDI and ECB. It also bridges the existing gap between the RBI regulations and Indian Government’s policy on FDI.
