January 18, 2021 In Consultancy, Corporate Law, FDI


Himanshu Goswami

LLP or a Limited Liability Partnership is a type of entity that was first allowed to be set up in India pursuant to the enactment of the Limited Liability Partnership Act, 2008.  LLPs have fast gained prominence across various industries with small and medium businesses, especially in the realm of start ups, owing to their ease of incorporation and relatively less onerous statutory compliances as compared to a body corporate. LLPs incorporate the flexibility of a partnership, while at the same time according liability protection to its partners, duly limited by virtue of the partnership agreement.

Whilst LLPs may be incorporated in almost any industry in India, when it comes to attracting overseas investment, there are certain constraints that an LLP faces. The Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce and Industry, vide press note 12 (2015 series), which came into effect on May 12, 2015, for the first time allowed Foreign Direct Investment (FDI) into LLPs in India.

FDI policy on LLPs was amended in 2015 to provide that investments in LLPs will not require Government approval. 100 percent FDI is now permitted under the automatic route in LLPs operating in sectors/activities where 100 percent FDI is allowed, through the automatic route and there are no FDI-linked performance conditions. FDI in LLP:

An LLP may receive FDI in its capital structure, from a person resident out of India, either by way of capital contribution or by way of acquisition/transfer of profit shares. Any person/entity that is resident/ incorporated out of India may invest in an LLP in India, except:

  • a citizen of Pakistan or Bangladesh
  • an entity incorporated in Pakistan or Bangladesh
  • Foreign Portfolio Investor
  • Foreign Institutional Investor
  • Foreign Venture Capital Investor (registered under SEBI guidelines) 

Eligibility of an LLP to receive FDI:

FDI in LLPs is permitted under automatic route, subject to the following conditions:

  • LLPs must be operating in sectors/ activities where 100 percent FDI is allowed through the automatic route and there are no FDI linked performance conditions. (For example,  the Construction Development sector has a requirement of a lock in period for FDI which means that there is a performance linked condition for FDI. Hence, an LLP operating in the business of Construction or development of townships, housing or built up infrastructure is not eligible for receiving FDI)
  • Compliance of the conditions of Limited Liability Partnership Act, 2008.

Pricing Guidelines:

FDI in an LLP, shall be at a price that is greater than or equal to the fair price as worked out with any internationally accepted valuation methodology or as per the prevalent per market practice and a valuation certificate to that effect shall be issued by the Chartered Accountant/practicing Cost Accountant/ an approved valuer from the panel maintained by the Central Government. This methodology would apply both for capital contribution and for acquisition/transfer of profit shares from a resident to non-resident.

Downstream Investment in LLP:

An Indian LLP, having foreign investment, shall be permitted to make downstream investment in an LLPengaged in sectors in which 100 percent FDI is allowed under the automatic route and there are no FDI linked performance conditions.

The LLP receiving downstream investment shall be obligated to ensure compliance with the above conditions. 

Conversion into a company: 

Conversion of an LLP having foreign investment into a company is permitted under automatic route provided the LLP is operating in sectors/activities where 100% FDI is allowed through the automatic route and there are no FDI-linked performance conditions,

Similarly, a company having FDI can be converted into an LLP under the automatic route provided it is operating in a sector where foreign investment up to 100 percent is permitted under automatic route and there are no FDI linked performance conditions.

Remittance of Disinvestment proceeds

The disinvestment proceeds may be remitted outside India or may be credited to NRE or FCNR(B) account of the person concerned, in accordance with Foreign Exchange Management (Deposit) Regulations, 2016. All reporting shall be done as per the norms prescribed by the RBI, in the Single Master Form.

The foregoing is a brief overview of FDI in LLP as per the extant exchange control guidelines in India, and is not meant to be legal advice. For any queries or advice, please contact us at office@nglaw.in

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