Information on FDI in LLP, Routes for FDI in Limited Liability Partnership, and 2 modes of FDI in LLP

Introduction

In this blog information on Foreign Direct Investment in LLP, and routes for FDI in LLP (Limited Liability Partnership) is explained in detail. Limited Liability Partnerships (LLPs), which were created in India by the Limited Liability Partnership Act 2008, have grown in popularity due to their simple registration and maintenance procedures.

LLPs provide many small and medium-sized businesses with a separate legal structure, improved transferability, and limited liability protection for their founders. As a result, there is a lot of interest among small business owners and service suppliers in forming an LLP. As stated earlier all information on FDI in LLP will be explained in detail in this blog. Before going through the FDI in LLP let’s have a quick look into what is FDI and What is LLP.

What is FDI?

FDI stands for Foreign Direct Investment. An investment in the form of controlling ownership in a business in one country by an entity established in another country is known as an FDI (Foreign Direct Investment). A sense of direct control distinguishes it from a foreign portfolio investment.

What is LLP?

A Limited Liability Partnership (LLP) is a partnership in which partners have limited liability. It can exhibit characteristics of both partnerships and companies. In an LLP, an individual partner is not responsible or liable for any other partner’s misconduct or negligence. LLP was introduced in India in the Limited Liability Partnership Act, 2008.

About FDI (Foreign Direct Investment) in LLP

There is a lot of interest in Foreign Direct Investment (FDI) in LLP since the Indian population is now scattered across the globe and there is significant interest among foreigners to acquire a presence in the Indian market. The annual FDI Circular released by the Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce and Industry, defines the policy for FDI in LLP, just as it does for FDI in private limited companies.

What are the routes for FDI in Limited Liability Partnership?

The Reserve Bank of India (RBI) has approved two pathways for foreign direct investment into India. The following are the routes

• Government Route Approval
• Automatic Route Approval

Foreign direct investment is not required to be approved by the RBI under the Automatic method. There is no need for permission if an entity is seeking foreign investment under automatic route approval. Prior clearance is necessary for Foreign Direct Investment via the Approval/Government method. There are some industries where foreign direct investment is prohibited.

A foreign business or foreign partnership can join an LLP under the limited liability partnership regulation. FDI was previously restricted to corporations and capitalists by the RBI. Foreign Direct Investment in Limited Liability Partnerships (LLPs) has been made possible thanks to a change in the law. The RBI viewed this move to be beneficial to the economy and the role that LLPs play in the global market.

Eligibility Criteria for FDI in LLP

The Reserve Bank of India (RBI) has established specified conditions for foreign direct investment in limited liability partnership (LLP). There are many types of funds that can be invested in an LLP, as well as different types of investors. The resident status of an individual or corporation is taken into account for this reason. The following are the types of investors who can invest in an LLP.

• A person who lives outside of India.
• A business, firm, or entity that is not based in India.

Who are not eligible for Foreign Direct Investment in LLP

• A person who is a Pakistani or Bangladeshi citizen.
• A business, firm, or other legal entity based in Bangladesh or Pakistan.
• Any institution that has been designated as a Foreign Institutional Investor in an LLP for the purpose of foreign direct investment (FDI).
• A Foreign Venture Capitalist as defined by SEBI; and a Foreign Portfolio Investor as defined under Foreign Direct Investment.

Sectors restricted for FDI

• Lottery and Gaming
• Agricultural Sector
• Gambling
• Businesses engage in the activity related to defence, energy, and automatic energy.
• Sale of Cigar Products, and Tobacco.

2 Modes of FDI in LLP (Limited Liability Partnership) 

There are two ways to bring foreign capital into a firm or entity

• Direct Investment

A direct investment is when a foreign entity makes a direct investment in an Indian firm.

• Indirect Investment

An indirect investment is one that is made by a foreign entity into a domestic entity. When a foreign entity owns a particular proportion or share of a firm and invests in the LLP through the Indian company. Indirect investment is the name given to this type of investment. This type of investment is also known as downstream investment.

Conclusion

Foreign Direct Investment (FDI) was formerly restricted to Indian enterprises. The RBI reduced the rules for foreign direct investment in LLPs to help them meet their financial needs. There are, nevertheless, specified conditions that the LLP receiving Foreign Investment must adhere to. The automatic route is the only way to bring FDI into an LLP. As a result, the LLP will be able to collect a 100 percent investment.

The LLP must follow effective reporting processes when it comes to the reporting criterion. The RBI has improved the funding requirements of LLPs while simultaneously increasing the amount of foreign investment in the country by providing them access to FDI. Foreign investors now have an alternative avenue to invest in India.