THE Cabinet
Committee on Economic Affairs today approved the proposal to amend the policy
on allowing Foreign Direct Investment (FDI) in Limited Liability Partnership
(LLP) firms.
The
FDI in LLPs will be implemented in a calibrated manner, beginning with the ‘open’
sectors where monitoring is not required, subject to the certain conditions:
(a)
LLPs with FDI will be allowed, through the Government approval route, in those
sectors/activities where 100% FDI is allowed, through the automatic route and
there are no FDI-linked performance related conditions.
(b)
LLPs with FDI will not be allowed to operate in agricultural/plantation activity,
print media or real estate business.
(c)
LLPs with FDI will not be eligible to make any downstream investments.
There
are also further following conditions relating to funding, ownership and management
of LLPS:
I.
Funding of LLPs:
(a)
An Indian company, having FDI, will be permitted to make downstream investment
in LLPs only if both the company, as well as the LLP are operating in sectors
where 100% FDI is allowed, through the automatic route and there are no FDI-linked
performance related conditions.
(b)
Foreign Capital participation in the capital structure of the LLPs will be allowed
only by way of cash considerations, received by inward remittance, through normal
banking channels, or by debit to NRE/FCNR account of the person concerned, maintained
with an authorized dealer/authorized bank; and
(c)
Foreign Institutional Investors (Flls) and Foreign Venture Capital Investors
(FVCIs) will not be permitted to invest in LLPs. LLPs will also not be permitted
to avail External Commercial Borrowings (ECBs.)
II.
Ownership and management of LLPs:
(a)
For the purpose of determination of the designated partners in respect of LLPs
with FDI, the term "resident in India" would have the meaning, as
defined for "person resident in India", under Section 2(v) (i) (A)
& (B) of the Foreign Exchange Management Act, 1999;
(b)
In case the LLP has a body corporate as a designated partner, the body corporate
should only be a company registered under the Companies Act and not any other
body, such as an LLP or a trust.
III.
Conversion of a company with FDI into an LLP will be allowed only if the above
stipulations are met and with the prior approval of FIPB/Government.
IV.
The designated partners will be responsible for compliance with the above conditions
and liable for all penalties imposed on the LLP for their contravention.
Presently,
FDI is allowed in Indian companies. It is allowed in a firm or a proprietary
concern, subject to certain conditions. FDI in a trust is also allowed with
prior Government approval, provided it is a Venture Capital Fund (VCF).
The
CCEA’s approval will benefit the Indian economy by attracting greater
FDI, creating employment and bringing in international best practices and latest
technologies in the country.
The
Limited Liability Partnership Act, 2008 (LLP Act) was notified in April, 2009.
With the passage of this Act, a new hybrid entity, incorporating the features
of a body corporate and a partnership, can now be formed for the purpose of
undertaking business in India.
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