FDI in LLP – Can NRI invest in LLP in India?

 

Introduction

Foreign Direct Investment (FDI) in LLP is one of the most asked questions by the NRI or person resident outside India since LLP is cheaper to form and also have lesser compliances as compared to a private Limited company.

However, the only fact which makes the LLP registration by NRI uncommon is the law regarding foreign direct investment in LLP. In other words, NRI or person resident outside India are not aware whether it is allowed to invest under LLP or not.

However, before getting ahead with our question, we need to first understand the two basic routes of foreign direct investment (FDI) in India:

• Automatic route: Under this route, government approval for investment is not allowed and any person can directly invest into the company.

• Approval route: Under this route, government permission is required before making any investment.

Let us now proceed and discuss the answer as to whether FDI in LLP is allowed or not.

 

FDI in LLP by NRI or foreigners as per latest FDI policy

As per the latest FDI policy, FDI in LLP is allowed under automatic route where the government has allowed 100% FDI in the respective sector and there is no FDI linked performance conditions.

E.g. Suppose in one sector FDI cap is 100% and in another sector, the government allows in 60% under the automatic route. Now, as per FDI policy, FDI in LLP under automatic route is allowed only where the government has allowed 100% FDI.

In other words, if the government allows 60% for any sector, then FDI in LLP is not allowed under the automatic scheme. In that case, prior permission of the government shall be required.

Let us also understand this case by the following table:

Sector	FDI allowed under automatic route	FDI in LLP
Defense	49%	Approval route
E-commerce	100%	Automatic route

 

Downstream investment by LLP into another Indian LLP or company

Downstream investment means investment made by the LLP which has accepted the foreign investment. For e.g. suppose ABC Private Ltd has received foreign investment from XYX Plc.

Now, ABC Private Ltd makes an investment into another company. So the investment made by ABC Pvt Ltd into another company is known as downstream investment. It is also known as foreign indirect investment.

As per the FDI policy, the LLP is also allowed to make a downstream investment into another company or LLP in sectors in which 100% FDI is allowed under the automatic route and there are no FDI-linked performance conditions.

 

Conversion of Private Limited Company into LLP or vice versa which has already accepted foreign investment

Any conversion of LLP into a company is allowed under automatic route which already has accepted foreign investment and which are operating in sectors/activities where 100% FDI is allowed through automatic route and there are no FDI linked conditions.

 

Conclusion

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