Thursday, 10 April 2014

FDI in LLP


This Regulatory Alert summarizes notification [No. FEMA.298/2014-RB]/GSR 190(E), dated 13 March 2014 namely FEM (Transfer or Issue of Security by a Person Resident Outside India) (Third Amendment) Regulations, 2014 issued by the Reserve Bank of India (RBI).
RBI has notified the guidelines in relation to the foreign direct investment (FDI) in Limited Liability Partnership (LLP). These guidelines were long overdue since FDI in LLP was permitted vide Press Note 1 of 2011 Series by Department of Industrial Policy and Promotion (DIPP) but there was no corresponding reference in the Foreign Exchange Management Act (FEMA).
These guidelines are a step in the right direction by the RBI to provide clarity on the reporting and valuation mechanism of the FDI in LLP. With this move more FDI will flow into LLP as majority of the investors were not comfortable with investment in LLP structure in the absence of any guidance under FEMA.
However, restriction on overseas body corporate cannot appoint/ nominate a designated partner is still a major road block for foreign investment in LLP. Further there is no clarity provided on whether the interest can be charged on the capital provided by the investor. As a process now RBI will issue a circular and may address certain aspects.

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