Investment in a Limited Liability Partnership (LLP) in India:
Foreign investment in India has undergone considerable liberalization over the past decade, extending not only to companies but also to alternative business structures such as Limited Liability Partnerships (LLPs). Since May 20, 2011, foreign direct investment (FDI) has been permitted in LLPs under specific regulatory conditions. Here's a concise overview of the legal and procedural framework surrounding foreign investment in LLPs in India.
1. Foreign Investment in LLPs
1.1 FDI Permitted Since 2011
The Indian government allowed foreign investment in LLPs from May 20, 2011, enabling global investors to participate in this flexible and tax-efficient business structure.
1.2 Eligible Investors
A person resident outside India (excluding citizens of Pakistan or Bangladesh) or an entity incorporated outside India (other than those incorporated in Pakistan or Bangladesh) is allowed to invest in LLPs. However, this investment route is not open to Foreign Portfolio Investors (FPIs) or Foreign Venture Capital Investors (FVCIs).
1.3 Sectoral Conditions
Foreign investment is only permitted in LLPs operating in sectors or activities where 100% foreign investment is allowed under the automatic route, and there are no FDI-linked performance conditions. This ensures ease of entry for foreign investors without the need for prior government approval.
1.4 Reinvestment Through Profit Share
Any investment made by way of profit share is classified as reinvestment of earnings, which is an important consideration for tax and compliance purposes.
1.5 Conversion of Company to LLP
A company with foreign investment can be converted into an LLP under the automatic route, provided it operates in a sector that allows 100% FDI under the automatic route without any performance-linked conditions.
1.6 Conversion of LLP to Company
Similarly, an LLP having foreign investment, and operating in eligible sectors, can also be converted into a company under the automatic route, facilitating flexibility in structuring and growth.
2. Mode of Payment for Capital Contribution
2.1 Permissible Payment Channels
Capital contributions by foreign investors in LLPs must be made through:
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Inward remittance via banking channels, or
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From funds held in repatriable foreign currency or a rupee account maintained in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016.
This ensures that the sources of funding are traceable and compliant with Indian foreign exchange regulations.
3. Remittance of Disinvestment Proceeds
3.1 Repatriation Options
Proceeds from the disinvestment in an LLP can be:
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Remitted outside India, or
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Credited to a repatriable foreign currency or rupee account maintained under the Foreign Exchange Management (Deposit) Regulations, 2016.
This provides a smooth exit mechanism for foreign investors and ensures regulatory alignment during capital repatriation.
Conclusion
LLPs in India offer a hybrid structure combining the benefits of limited liability and operational flexibility, making them an attractive option for foreign investors. With clear guidelines in place under the Foreign Exchange Management Act (FEMA) and the LLP Act, 2008, India provides a conducive environment for foreign investment in this format—especially in sectors fully open under the automatic route. However, investors must be mindful of the eligibility criteria, sectoral conditions, and compliance requirements to ensure a smooth investment and operational experience.
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