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Foreign Investment in LLP

Foreign Investment is one of the main catalysts for healthy growth of economy of any country. Foreign investment policy in India has gone through significant reforms and procedural aspects have been liberalized to great extent. Mostly investments in all the major sectors have been brought under the automatic route i.e. which can be carried without the approval of Government of India.

In India, currently, Foreign Investment is allowed only under the Company form of business organization and i.e. by way of contribution to its equity or instruments compulsorily convertible into equity when it relates to control or ownership of that company. Foreign Investment in Company is also allowed under following two modes:

1. Automatic Modes: It specifies the sector in which the Foreign Investment can be made which approval of any authority subject to the extent permitted.
2. Approval route: It specifies the sector, in which permission of Foreign Investment Promotion Board is required for making foreign investment to the extent specified.

The Limited Liability Partnership Act 2008 prescribes that any Body Corporate can become a partner in the Limited Liability Partnership and defines the term, Body Corporate as follows:

Body Corporate means a company as defined in section 3 of the Companies Act, 1956 (1 of 1956) and includes—

1. a limited liability partnership registered under this Act;
2. a limited liability partnership incorporated outside India; and
3. a company incorporated outside India,

but does not include—

1. a corporation sole;
2. a co-operative society registered under any law for the time being in force; and
3. any other body corporate (not being a company as defined in section 3 of the Companies Act, 1956 (1 of 1956) or a limited liability partnership as defined in this Act), which the Central Government may, by notification in the Official Gazette, specify in this behalf;

It is clear from the definition of the term, “Body Corporate” that even Companies & LLP incorporated outside India can incorporate LLP in India under the LLP Act 2008 and Foreign Investment is allowed in LLP form of business but as currently the Foreign Exchange Management Act 1999 and regulations made therein does not recognizes LLP form of business and does not allows any Foreign Investment, therein.

Therefore Foreign Companies /LLP can start incorporating LLP in India only after the Foreign Exchange Management Act 1999 and regulations, made there under are amended to include guidelines as to foreign investment in LLP and till than no such LLP can be incorporated.

Since almost all the Foreign Investment guidelines are being prescribed keeping in view the Company form of business organization and keeping in view the restrictions, which have been provided therein, the Government would definitely take some time to work out the necessary guidelines for LLP’s and Foreign investors will have to wait a while, before they can take the advantages of LLP in India.