FIIs, foreign venture capital investors will not be allowed to invest in LLPs

In a policy amendment aimed at attracting more long-term foreign inflows, the Cabinet Committee on Economic Affairs (CCEA) on Wednesday allowed foreign direct investment (FDI) in Limited Liability Partnership (LLP) firms, beginning with the ‘open' sectors such as mining, power and airports where monitoring is not required, subject to certain specific conditions.

“The FDI in LLPs will be implemented in a calibrated manner, beginning with the ‘open' sectors where monitoring is not required,” an official statement said. As per the CCEA approval for calibrated implementation, LLPs with FDI will be permitted through the government approval route (read Foreign Investment Promotion Board) in those sectors and activities where 100 per cent FDI is allowed through the automatic route and there are no FDI-linked performance related conditions.

However, LLPs with FDI will not be allowed to operate in agricultural and plantation activities, print media or real estate business and will also not be eligible to make any downstream investments.

With regard to funding of LLPs, the statement said that 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 per cent FDI is allowed, through the automatic route.

Also, foreign 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 the NRE/FCNR account of the person concerned which is maintained with an authorised dealer or bank.

However, foreign institutional investors (Flls) and foreign venture capital investors (FVCIs) will not be permitted to invest in LLPs. “LLPs will also not be permitted to avail themselves of external commercial borrowings (ECBs),” the statement said.

“The CCEA's approval will benefit the Indian economy by attracting greater FDI, creating employment and bringing in international best practices and latest technologies in the country,” the statement said.

As per the LLP Act, 2008, which was notified in April, 2009, LLP as an entity is a new business structure with hybrid features of a partnership firm and a corporate body.

In effect, it has a company's limited liability along with the flexibility of a partnership firm. In all, a total of 4,679 LLPs stand registered with the Ministry of Corporate Affairs as of May 2 this year.

  • Mining, power and airport sectors to be taken up first
  • LLPs will not be allowed to avail themselves of ECBs