Foreign investment in limited liability partnership (LLP)

Department of Industrial Policy & Promotion (DIPP) ?has issued the much awaited discussion paper on allowing Foreign Direct Investment (FDI) into LLP. Currently there is no policy in respect of the FDI in LLP and this discussion paper will pave the way for regulatory framework for allowing FDI in this newly introduced form of business. The discussion paper is open for public comments till 31st October 2010.

Under the discussion paper, DIPP have asked for the comments of public at large on the below given questions

a) Should FDI be permitted in LLPs at all?? Can it be argued that given its limited attractiveness for large investments, allowing FDI in LLPs will not significantly accelerate FDI into the country while disproportionately increasing the regulatory burden?? Does the present uncertainty on how this business model will proceed, as well its yet unestablished case law, magnify these concerns?

b) What should be the definition of ?person resident in India?? The definition provided in the LLP Act or the definition provided in FEMA?

c) Given the complexity of some of the issues raised in Section 5, would it be preferable to adopt a calibrated approach to the induction of FDI in LLPs? Initially, should FDI in LLPs be restricted to sectors without caps, conditionalities or entry route restrictions? Should FDI be allowed upto? 100%? in these sectors or should there necessarily be an Indian partner ? Should such approval?? be confined to the government route?

d) Should LLPs be mandated not to make downstream investments and should foreign owned or controlled Indian companies be barred from investing downstream in LLPs? Should investment by FII/FVCI or ECBs be prohibited for LLPs?

e) Following? the Foreign Exchange Management ( Investment in Firm or Proprietary Concern in India ) Regulations 2000,? should it? be mandated that foreign participation in the capital structure of LLPs should be on a percentage basis, received only by way of cash consideration by inward remittances through normal banking channels, or by debit to the NRE/FCNR account of the person concerned maintained by an authorised dealer? Should it also be mandated that foreign investments in LLPs engaged in agricultural/plantation activity or real estate are prohibited?

e) Should FDI policy treat LLPs akin to companies? In such a case, how should the issues relating to ownership, valuation, control, downstream investment and non-cash contributions, raised in Section 5 above, be addressed? Should this be only through the government route?

f)? Will treating LLPs akin to companies under FDI policy demand the stipulation of certain features of the LLP agreement? Should this include unambiguous specification of profit /loss sharing percentage; clear specification of the power to appoint Designated Partners; congruence of legal and economic ownership; timely notification of changes including conversion from and to companies/partnerships?? Should it be mandated that LLPs cannot have corporate bodies other than companies registered under the companies Act as partners?? Is inclusion and coverage of such issues in FDI policy warranted?? Would the consequent increase in the regulatory burden be justifiable?

g) What additional regulatory safeguards are required to enfold LLPs into FDI policy? Are amendments to any existing regulations required? Should the responsibility for periodic monitoring of compliance with FDI stipulations be allotted to a particular agency?

About Corporate Professionals (India) Pvt Ltd:

Corporate Professionals is a group best illustrated for providing widest spectrum of corporate services at one stop. They are recognized as a destination where all paths in hunt for corporate solutions end. The group has been involved in delivering services ranging in Corporate Restructuring, Corporate Compliance and Due Diligence, Investment Banking, FEMA Advisory, Corporate Taxation, Securities Laws Advisory etc.

For further details please contact:

Mr. Ankit Singhi

Direct No : +91 11 40622208

Board No ?: +91 11 40622200

Email ? ? : ankit@indiacp.com