Subsequently, the Reserve Bank of India (RBI) amended the Foreign Exchange Management (Transfer or issue of Security by a Person Resident outside India) Regulations, 2000 (FEMA 20) for allowing FDI in LLP under automatic route, permitting downstream investment by an FDI with LLP, etc. Recently, the RBI vide Notification dated 3 March 2017 has amended FEMA 20 to further relax the conditions for making FDI in an LLP. The Notification has been summarized below:
- Conversion of a company into an LLP has been brought under automatic route. However, this is subject to the condition that the company being converted is engaged in sectors where 100 percent FDI is allowed without any FDI linked performance conditions.
- Conditions restricting an LLP from appointing a body corporate other than an Indian company to act as the designated partner (DP) has been done away with i.e. a foreign company can now act as the DP of the LLP.
- Prohibition on an LLP from availing External Commercial Borrowings (ECBs) has been done away with. However, it may be noted that the extant ECB regulations continue to prohibit LLPs from availing ECBs.
My comments
The amendment has done away with certain onerous conditions such as restricting body corporates other than Indian companies from acting as DPs, obtaining prior approval for conversion of a company into an LLP, etc. The above reforms coupled with other operational advantages could result in LLPs being increasingly viewed as a preferred entity structure for doing business in India for sectors covered under the automatic route.