Reserve Bank of India Further Relaxes Rules of Foreign Direct Investment in LLP’s

September 07th 2018

We reported previously on the Reserve Bank of India’s (RBI) decision to allow up to 100% foreign direct investment (FDI) under the automatic route, whereas previously it required approval.  However existing companies wishing to convert to an LLP through FDI still required approval even though this had been liberalised in the governments revised policy.
However on the 3 March 2017, the RBI has amended schedule 9 of the Foreign Exchange Management Act to incorporate these liberalisations.
Subsequently:-

  • A company that has received foreign investment can now be converted into an LLP under the automatic route if it is engaged in a sector where 100% FDI is permitted under the automatic route.
  • Foreign companies are now able to appoint designated partners in LLP’s.
  • Individuals no longer have to satisfy a residency test under FEMA to be appointment as a designated partner in an LLP.

The RBI has also deleted the section prohibiting LLPS to avail External Commercial Borrowings (ECB).  Opinion on this is that subsequent to an amendment to ECB policy framework is that LLP’s will soon be eligible for this.
This amendment harmonizes the governments FDI policy and the RBI regulations and supports the Indian Prime Minister’s commitment to make India the most open economy in the world for FDI.