Govt Partially Opens LLPs To Foreign Investments.

The government on Wednesday partially opened limited liability partnerships to foreign investments, ending months of wrangling over the extent of foreign ownership in this new form of business structure.

Foreign direct investment in LLPs will be allowed only in those sectors where 100% foreign ownership is permitted.

Even this permission will take the approval route, the cabinet committee on economic affairs, or CCEA, decided on Wednesday.

"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," an official statement said.

LLPs with foreign investments will not be allowed in agricultural or plantation activity, print media and real estate business or downstream investments.

The government has also imposed stringent conditions to prevent its misuse. An Indian company having foreign direct investment 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% FDI is allowed, through the automatic route and there are no FDI-linked performance-related conditions.

Foreign participation in the LLPs will be allowed only by way of cash considerations, received by inward remittance through normal banking channels. Foreign Institutional Investors and Foreign Venture Capital Investors will not be permitted to invest in LLPs.

LLPs have also been barred from accessing overseas debt through external commercial borrowings.

These rules are consistent with the regime in many countries where LLPs face certain restrictions.

In some countries, for instance, they are not allowed to make investments in sensitive sectors such as aviation.

The government has also imposed stricter norms for conversion of companies that have FDI into LLP.

Conversion of a company with FDI into an LLP will be allowed only conditions laid down by the government are met with the prior approval of the foreign investment promotion board.

The designated partner of an LLP should only be a company registered under the Companies Act and not any other body, such as an LLP or a trust.

However, experts say enabling provision for conversion would allow foreigners to restructure their businesses here.

"Enabling window for conversion on exisiting companies to LLPs will give opportunities to foreign investors to restructure their business to migrate to a more efficient entity platform," says Akash Gupt, executive director, PwC.

The designated partners will be responsible for compliance with the above conditions and liable for all penalties imposed on the LLP for their contravention. Industry analysts say the move will help the country attract foreign capital. Foreign investors will now get a window to operate in a simpler and tax-efficient environment.

The DIPP had put out a discussion paper in September last year for public comments on whether 100% FDI should be allowed in LLPs.

The move comes in the backdrop of the UPA governments decision to have a simpler regulatory framework to attract FDI inflows,which declined by 25% in the first 11 months of the current financial year to only $18.35 billion in FDI. Foreign investors can now use the flexibility this form of business structure that has less stringent norms on meetings and maintenance of statutory records.

It would also help Indian partnership firms, especially in consultancy business to corporatise and bring in professional practices. Currently, FDI is not permitted in partnerships firms.

Source : economictimes.indiatimes.com