RBI welcomes Foreign Direct Investment in LLPs

In a big benefit move, the Reserve Bank of India (RBI) has allowed foreign direct investment in limited liability partnerships. The LLP Act 2008 allowed foreign nationals and foreign LLPs (Limited Liability Partnerships) to become a partner in LLP but as per the Foreign Exchange Management Act and regulations and rules, foreign investment in LLP was not allowed, therefore it was necessary to prescribe a regulatory policy for allowing Foreign Direct Investment (FDI). FDI has now been allowed in Limited Liability Partnerships as well.

The government had previously approved FDI in LLPs around three years ago. While retaining major clauses of the move then, RBI has clarified a few other points. Earlier, only a company incorporated under the Companies Act, 1956 or a Venture Capital Fund was eligible to accept FDI. The new norms for FDI in LLPs are as follows:

ELIGIBLE INVESTORS: Person resident outside India or an entity incorporated outside India Except:

  1.    a citizen/entity of Pakistan and Bangladesh or
  2.    a SEBI registered Foreign Institutional Investor (FII) or
  3.    a SEBI registered Foreign Venture Capital Investor (FVCI) or
  4.    a SEBI registered Qualified Foreign Investor (QFI) or

Foreign Portfolio Investor registered in accordance with Securities and Exchange Board of India(Foreign Portfolio Investors) Regulations, 2014 (RFPI).

The central bank has allowed foreign direct investment in limited liability partnerships firms to push growth and employment


LLPs (existing or new) operating in sectors or activities where 100% FDI is allowed under the automatic route of FDI Scheme are eligible for accepting FDI


LLP engaged in the following sectors/activities shall not be eligible to accept FDI:

  1.   Sectors eligible to accept 100% FDI under automatic route but which are subject to FDI-linked performance related conditions (for example minimum capitalization norms applicable to ‘Non-Banking Finance Companies’ or ‘Development of Townships, Housing, Built-up infrastructure and Construction-development projects’, etc.)
  2.   Sectors eligible to accept less than 100% FDI under automatic route;
  3.   Sectors eligible to accept FDI under Government Approval route
  4.   Agricultural/plantation activity and print media
  5.    Sectors not eligible to accept FDI at all  

FDI is prohibited in any form in the following sectors:

  1.  Business of chit fund, or
  2.  Nidhi company, or
  3.  Agricultural or plantation activities, or
  4.  Real estate business, or construction of farm houses, or
  5.   Trading in Transferable Development Rights (TDRs).
  6.   Lottery Business including Government /private lottery, online lotteries, etc.
  7.  Gambling and Betting including casinos etc.
  8.  Manufacturing of Cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes
  9.   Activities / sectors not open to private sector investment e.g. Atomic Energy and Railway Transport (other than Mass Rapid Transport Systems).


  1.  Downstream Investments by Company: 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. It shall be the responsibility of the LLP accepting investment from the Indian Company registered under the provisions of the Companies Act, to ensure compliance with downstream investment requirement as aforesaid.

The important point to note is that an LLP with FDI under this scheme will not be eligible to make any downstream investments in any entity in India.

  1. Investment by Cash Consideration:

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. For making a noncash/intangible contribution towards the capital of the LLP, permission of Government of India will be required.

  1. External Commercial Borrowings (ECBs): LLPs shall not be permitted to avail External Commercial Borrowings (ECBs).


Any form of foreign investment in an LLP, direct or indirect (regardless of nature of ‘ownership’ or ‘control’ of an Indian Company) will require Government/FIPB approval.


Payment by an eligible investor towards capital contribution/profit share of LLPs will be

allowed, only by way of cash consideration to be received by –

  1. i)  way of inward remittance through normal banking channels; or
  2.   ii)  debit to NRE/FCNR(B) account of the person concerned, maintained with an AD Category – I bank.


The LLP’s will have to report to the concerned Regional Office of RBI details of the amount of consideration for the capital contribution received and the shares in profits. These details are to be reported in Form FOREIGN DIRECT INVESTMENT-LLP(I) along with the necessary attachments as given in the Form.

The instructions issued shall be effective from May 20, 2011. However, reporting requirement of FDI in LLP shall come into force from the date of issue of instructions by the Reserve Bank in this regard. The LLP which has received foreign investment in terms of FIPB approval between May 20, 2011, to the date of this circular, shall comply with the reporting requirement in respect of FDI within 30 or 60 days, as applicable, from the date of this circular.


  1.  In case, an LLP with FDI has a body corporate as a designated partner such a body corporate should only be a company registered in India under the provisions of the Companies Act, as applicable and not any other body, such as an LLP or a Trust.
  2.   This means the following can be Partners of an LLP with FDI:
  3.  A Foreign National
  4.  A Foreign LLP
  5.  Company Registered in India under Companies Act, 1956 or Companies Act, 2013
  6.  An Indian National
  7.  The designated partners will be responsible for compliance with all the aforesaid conditions and also liable for all penalties imposed on the LLP for their contravention.


After great success in foreign countries, the LLP could be the main entity in the future of Corporate India. However, its success depends on the recognition and the support of the various allied regulations prevailing in India. Foreign investments provide the much-needed impetus for the growth of the Indian economy.  Allowing FDI in LLP is a welcome move from the Government and the RBI, as it would provide foreign investors an alternate form of business other than the company and would entitle them to benefit with inherent flexibility & tax efficient LLP structure. For eg – LLP’s are not subject to Dividend Distribution Tax. This move will boost the number of joint ventures in the country, with their corresponding benefits as- employment opportunities, and improved technologies.

The government has taken quite a cautious approach towards allowing FDI in LLPs as they are not structured like Companies. It would be wise to first see how are the LLPs bringing in the funds and how are the funds being utilized. Let us hope that the Government gradually liberalizes the regulations and further opens LLPS to foreign investors.