Limited Liability Partnership (LLP) is one of the ways through which Non-Resident Indians and Foreign Nationals can invest in India. Foreign Direct Investment (FDI) in LLPs is allowed by way of capital contribution or by way if acquisition/ transfer of profit shares in the capital structure of an LLP. LLP is a corporate business vehicle that enables professional expertise and entrepreneurial initiative to combine and operate in flexible, innovative and efficient manner, providing benefits of limited liability while allowing its members the flexibility for organising zing their internal structure as a partnership.
ELIGIBILITY OF AN LLP
FDI in LLPs in India is permitted subject to the following conditions:
- FDI is permitted under the automatic route in LLPs operating in sectors / activities where 100% FDI is allowed through the automatic route and there are no FDI linked performance conditions
- An Indian LLP, having foreign investment, will be permitted to make downstream investment in another LLP engaged in sectors in which 100% FDI is allowed under the automatic route and there are no FDI linked performance conditions. Onus shall be on the Indian LLP accepting downstream investment to ensure compliance with the above conditions
- FDI in LLP is subject to the compliance of the conditions of Limited Liability Partnership Act, 2008
- A company having foreign investment can be converted into an LLP under the automatic route only if it is engaged in a sector where foreign investment up to 100% is permitted under automatic route and there are no FDI linked performance conditions
- FDI in an LLP either by way of capital contribution or by way of acquisition/ transfer of profit shares, would have to be more than or equal to the fair price as worked out with any valuation norm which is internationally accepted/ adopted as per market practice and a valuation certificate to that effect shall be issued by the Chartered Accountant or by a practicing Cost Accountant or by an approved valuer from the panel maintained by the Central Government
- In case of transfer of capital contribution/ profit share from a resident to a non-resident, the transfer shall be for a consideration equal to or more than the fair price of capital contribution/ profit share of an LLP. Further, in case of transfer of capital contribution/ profit share from a non-resident to resident, the transfer shall be for a consideration which is less than or equal to the fair price of the capital contribution/ profit share of an LLP.
IMPORTANT POINTS ABOUT LLP
- Minimum Capital– Not Prescribed
- Minimum Number of Member– Two partners
- Maximum Number of Members– Not Prescribed (No upper limit)
- Entity– Separate entity distinct from its partners
- Managed By– Designated partners
- Resident Director– One designated partner must be a resident of India
- Audit– Not required for small firms; LLPs having annual turnover of more than INR 40 lakhs or contribution is more than INR 25 lakhs have to get their accounts audited
- Foreign Investment– Permitted only in activities where 100% FDI is allowed by automatic route without conditions
SECTORS WHERE FDI IS ALLOWED IN LLP STRUCTURE
Some of the important sectors where 100% FDI is permitted without any conditions are:
- Civil Aviation Sector
- Mining and Exploration of Metal and Non-metal Ores
INCODRPORATION OF AN LLP
Obtaining Digital Signature Certificate is the first step to incorporate an LLP in India. For NRIs and Foreign nationals, apostilled and notarized copy of Passport and Address proof is necessary to obtain the DSC.
Designated Partner Identification Number (DPIN) can be obtained after the partner has obtained the DSC. This is a mandatory step for incorporating an LLP.
Application for Approval of LLP Name To get the name approved, the applicant has to login to the web portal of the Ministry of Corporate Affairs (MCA). An online application for reservation of the name can be filed and can contain up to 6 names out of which 1 gets accepted. After the approval of the name an application of incorporation can be filed within the prescribed time (60 days) to complete the incorporation process.
Application for Incorporation of LLP shall be filed in such a manner and with such fees as may be prescribed with the Registrar of the State in which the registered office of the LLP is situated. The application should be filed along with a statement, made by an Advocate/ Company Secretary/ Chartered Accountant/ Cost Accountant who is engaged in the formation of the LLP, that all the requirements of the Limited Liability Partnership Act, 2008 and the ruled made there under have been complied with. The incorporation document must contain the name of the LLP, the proposed business of the LLP, its address of registered office, name and address of each of the designated partners.
When the above mentioned requirements are complied with, the Registrar shall, within a period of 14 days, register the incorporation document and give a certificate that the Limited Liability Partnership is incorporated by the name specified therein.
Filing LLP Agreement is done post incorporation of the Limited Liability Partnership. The designated partners need to enter a valid agreement. The mutual rights and duties of the partners of the LLP and the mutual rights and duties of an LLP and its partners are governed by the LLP Agreement. The agreement and any changes, if any, made therein, shall be filed with the Registrar within 30 days of the incorporation accompanied by such fees as may be prescribed.
In absence of an agreement the mutual rights and duties must be determined by the provisions relating to that matter as are set out in the First Schedule of the Limited Liability Partnership Act, 2008. The stamp duty that is to be paid for the agreement will be according to the State Stamp Act. Under Income Tax, interest paid and remuneration or commission paid to partners will be allowed as deduction if payment is authorized by a written LLP Agreement.
Limited Liability Partnership can be incorporated in around 15 to 20 days if all the documents are available and correctly filed. Going for LLP structure for NRIs and Foreign Nationals might be one of the best options seeing that it is simple and the process of its incorporation is easier than the other forms of business. An LLP is required to go through some compliance after its incorporation like filing of Form 8 (Statement of Account and Solvency), Form 11 (Annual return), ITR- 5 (Income Tax Return) and the same compliances are to be followed by Foreign Nationals and NRIs with no exception whatsoever. Even though foreign investment through LLP is allowed where 100% FDI is permitted without any conditions, it still is one of the most useful options for NRIs and Foreign Nationals.