Limited Liability Partnership (LLP)

Limited Liability Partnership (LLP)

A Limited Liability Partnership (LLP) offers a hybrid business structure combining the benefits of limited liability with operational flexibility. It is a preferred option for professionals and foreign investors seeking a low-compliance, transparent entry model into India. Recent changes in FDI policy have expanded the scope for foreign investment in LLPs, subject to specific regulatory conditions.
Foreign companies or individuals can invest in Indian LLPs, provided the business operates in sectors where 100% FDI is permitted under the automatic route and no performance-linked conditions apply.
LLPs are not allowed to receive FDI in sectors that require government approval or have less than 100% FDI under the automatic route.
FDI in LLPs is now permitted without prior government approval, as long as it meets the above eligibility criteria (as per updated FEMA guidelines and DPIIT Press Notes).
Foreign Portfolio Investors (FPIs) and Foreign Venture Capital Investors (FVCIs) are still not permitted to invest in LLPs.
Compliance with Reporting of FDI in an LLP
Certain compliance measures have to be taken by the LLP receiving foreign investment as follows:
Annual Return on Foreign Liabilities and Assets: LLP which has received investment by way of capital contribution in the previous year(s) including the current year, shall submit form FLA to the Reserve Bank on or before the 15th day of July of each year.
Form FDI- LLP (I): A Limited Liability Partnerships (LLPs) receiving amount of consideration for capital contribution and acquisition of profit shares is required to submit a report in Form Foreign Direct Investment-LLP (I) within 30 days from the date of receipt of the amount of consideration. The form shall be accompanied by: (a) copy/ies of the FIRC/s evidencing the receipt of the remittance. (b) KYC report in respect of the foreign investor in the format specified in.
Form FDI- LLP (II): The LLPs shall report disinvestment/ transfer of capital contribution or profit share between a resident and a non-resident (or vice versa) within 60 days from the date of receipt of funds in Form Foreign Direct Investment-LLP(II).
LLPS not eligible for accepting FDI:
LLP engaged in the following sectors/activities shall not be eligible to accept FDI:
Sectors eligible to accept 100% FDI under automatic route but which are subject to FDI-linked performance related conditions (for example minimum capitalization norms applicable to ‘Non-Banking Finance Companies’ or ‘Development of Townships, Housing, Built-up infrastructure and Construction-development projects’, etc.)
Sectors eligible to accept less than 100% FDI under automatic route;
Sectors eligible to accept FDI under Government Approval route
Agricultural/plantation activity and print media
Sectors not eligible to accept FDI at all which are as follows:
Business of chit fund, or
Nidhi company, or
Agricultural or plantation activities, or
Real estate business, or construction of farm houses, or
Trading in Transferable Development Rights (TDRs).
Lottery Business including Government /private lottery, online lotteries, etc.
Gambling and Betting including casinos etc.
Manufacturing of Cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes
Activities / sectors not open to private sector investment e.g. Atomic Energy and Railway Transport (other than Mass Rapid Transport Systems).
Even though LLPs have certain limitations and restrictions when it comes to foreign direct investment, it is still a growing industry for investors because it allows them the freedom to withdraw their money and repatriate it to their home country, a task that partnerships and proprietorships cannot do. At first, foreign direct investment was restricted to Indian businesses. The RBI loosened the rules for foreign direct investment in an LLP in order to enhance the finance needs for an LLP. However, the LLP that receives the foreign investment must adhere to certain requirements. In an LLP, FDI is only allowed via the automated route. The LLP can get a 100% investment in this way. The investment must not be subject to any performance-related conditions associated with the LLP. The LLP must adhere to efficient procedures when it comes to the reporting requirements. By allowing LLPs to have access to FDI, the RBI has improved the funding requirement of an LLP and also enhances the amount of foreign investment in the country. Through this initiative, foreign investors have an alternate route to invest in India.

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