Facebook Pixel Code

Govt may relax FDI norms for LLPs

To spur the flow of foreign funds into limited liability partnerships in India, the government is set to allow wholly owned subsidiaries of foreign entities to directly invest in these firms from the earnings generated in the country.

To spur the flow of foreign funds into limited liability partnerships (LLPs) in India, the government is set to allow wholly owned subsidiaries of foreign entities to directly invest in these firms from the earnings generated in the country.

The government feels the move will make this hybrid corporate form ? half-way between partnership firms and companies ? attractive for existing and prospective entrepreneurs, as they will find it easier to tap foreign funds to expand equity.

Currently, foreign capital participation in LLPs is allowed through the Foreign Investment Promotion Board (FIPB) route ? and only by way of cash consideration, received through inward remittance using normal banking channels.

This impedes access of FDI for LLPs as overseas entities already existing in the country, too, are required to bring fresh capital from their parents into an LLP venture rather than using their India revenues for such investments. The FIPB permission will continue to be required for foreign investments in LLPs, but the wholly owned arms of overseas investors can now directly invest in them.

LLP is a hybrid corporate form that allows company-liked limited liability (each partner’s liability will be limited to his agreed contribution), while allowing partners the flexibility of organising the structure of the business on terms they have agreed on.

The LLP Bill was passed by Parliament in late 2008, and at that time, it was hoped that nearly half of India’s privately owned companies would convert themselves into LLPs to benefit from the ease of conduct of business under the new structure, popular in many European countries, especially among services sector entrepreneurs and professionals. But LLP has not been a runaway success in India and there are only over 5,000-odd LLPs registered in India so far. One reason for the lukewarm response is the difficulty in attracting foreign funds.

Sources said the Department of Industrial policy and Promotion (DIPP) would soon relax the FDI norms for LLPs through a press note.

Sources said restriction on downstream investment by LLPs with foreign capital may be eased. Also, the ban on such entities tapping external commercial borrowings could go, subject to riders.

The issue of the restrictive provisions for FDIs in LLPs came up for discussions before the FIPB in the case of a proposal from TCL India for partnering with Pore Seals India for setting up a LLP operation engaged in manufacturing of nickel plating and metal finishing. In this case, TCL India wanted to invest in the LLP, but being a foreign owned and controlled company, it was not allowed as ?the inward remittance clause? was not being met.

Get live Share Market updates, Stock Market Quotes, and the latest India News and business news on Financial Express. Download the Financial Express App for the latest finance news.

First published on: 24-12-2012 at 03:44 IST
Market Data
Market Data
Today’s Most Popular Stories ×