Using LLP as a business vehicle |
The Limited Liability Partnership (LLP) Act which was notified in April 2009 allowed LLPs to be incorporated for the purposes of undertaking business in India. LLP is a hybrid form of business with the features of both a body corporate as well as traditional partnership.
However, until now, there was not enough clarity on Foreign Direct Investment (FDI) in a partnership firm / LLP. FDI was allowed in a limited way and subject to conditions. The investment under automatic route was allowed only by non-resident Indian or a person of Indian origin on non-repatriation basis and in any other case with government approval. However, there were hardly any cases of foreign investment in partnerships due to absence of a clear policy on the matter.
The Government, in September 2010, had issued a discussion paper on permitting FDI in LLPs and invited comments on the same from various stakeholders. In the above backdrop, the Cabinet Committee on Economic Affairs (CCEA) approved the proposal to amend the FDI policy on permitting FDI in LLP on 11 May 2011. After the CCEA’s approval, the government vide Press Note 1 of 2011 dated 20 May 2011 also modified the FDI policy to formally permit the FDI in LLPs.
The allowing of FDI in LLPs is a momentous step since the liberalization of the FDI Policy in 1991 and should encourage entrepreneurs in India to explore business ventures with foreign investment / collaboration who otherwise shied away from the tedious traditional corporate structures.
Using Limited Liability Partnership as a business vechicle
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