In the increasingly litigious market environment, the prospect of being a member of a partnership firm with unlimited liability is, to say the least, risky and unattractive. This led to the enactment of the Limited Liability Partnership (LLP) Act, which became effective from March 31, 2009. With the passage of this Act, a new hybrid entity, an LLP, incorporating the features of a body corporate and a partnership, can now be formed for the purpose of undertaking business in India.
Recently the Government gave a nod to changes in Foreign Direct Investment (FDI) policy, allowing FDI in LLPs. This alert summarizes this welcome announcement.
FDI Policy for LLPs
The Government had in the past issued a Discussion Paper inviting comments from stakeholders on aspects such as:
- Whether FDI should be allowed only in LLPs engaged in activities falling under automatic route
- Should only cash contribution be allowed
- Allowability of downstream investment,
- Raising ECBs
The Cabinet Committee on Economic Affairs (CCEA) has finally approved the FDI policy for LLP’s. The FDI in LLPs will be implemented in a calibrated manner, beginning with the ‘open’ sectors where monitoring is not required.
Salient features of the approved policy, as contained in the Government press release, are as follows:
- FDI in LLPs to be allowed up to 100% in sectors/activities that are currently eligible for 100% FDI under automatic route and which do not have any FDI-linked performance conditions.
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