NRIs and Foreign Nationals starting or investing in a business in India have mainly done through a private limited company, as it allowed for 100% Foreign Direct Investment (FDI) under the automatic route for many of the sectors. Though the cost for incorporation of a private limited company is relatively low compared, the effort required to maintain compliance was an inhibiting factor. To allow NRIs and Foreign Nationals to freely invest in businesses in India and improve foreign investment, the Government has now allowed 100% FDI in LLP under the automatic route.
Limited Liability Partnership (LLP) is one of the newest forms of business entity in India introduced through the Limited Liability Partnership Act, 2008. LLP registration started in India in 2008 and has quickly become popular amongst small businesses owing to the low registration cost and lesser compliance requirement when compared to a private limited company.
Registration of LLP
Prior to November, 2015, investment in LLP by NRI or Foreign National required Government approval. This made LLP incorporation involving NRIs and/or Foreign Nationals – a long, cumbersome and expensive process. Thus company registration was preferred over LLP registration by NRIs and Foreign Nationals. With the relaxation of FDI norms in November, 2015, LLP registration can be done easily by NRIs and Foreign Nationals, making it an ideal investment vehicle for establishing a small business in India with foreign direct investment.
FDI in LLP
Post changes to FDI regulations on 10th, November, 2015, 100% FDI in LLP is now permitted under the automatic route. 100% FDI in LLP is allowed for businesses operating in sectors/activities where 100% FDI is allowed, through the automatic route and there are no FDI-linked performance conditions. In addition, LLPs will also be allowed to make downstream investment in another company or LLP in sectors in which 100% FDI is allowed under the automatic route and there are no FDI-linked performance conditions. Therefore, FDI in LLP is now allowed and NRIs or Foreign Nationals can start or invest in a LLP.
LLP Registration Procedure for NRIs and Foreign Nationals
A minimum of two person are required to register a LLP in India. It is recommended that atleast one of the Partner of the LLP be both an Indian Citizen and Indian Resident – similar to the requirement for registration of company in India. The procedure for LLP registration involves five major steps namely: Digital Signature, Designated Partner Identification Number, Name Approval, Incorporation and LLP Agreement Filing.
Digital Signature Certificate
Digital Signature Certificate (DSC) must be obtained for the proposed Partners of the LLP. DSC is necessary for obtaining Designated Partner Identification Number (DPIN). To obtain DSC, the NRI or Foreign National must submit the signed DSC application along with a notarized copy of Passport and Address Proof (Driver’s License, Residence Card and more).
Designated Partner Identification Number
Partners in a LLP require Designated Partner Identification Number (DPIN) and it can be obtained once DSC is obtained for the Partner. DPIN can be used with Director Identification Number (DIN) used in the incorporation of a company.
Name Approval for LLP
Once two DPINs are available, an application for reservation of name of LLP can be made to the Ministry of Corporate Affairs (MCA). The application for name can contain upto six names that are acceptable as per the LLP Act, 2008. The name must be unique, as per norm of the LLP Act and must not be similar to an existing company or LLP name. If any one of the name is approved, then incorporation application can be filed within 60 days to complete the incorporation.
Incorporation of LLP
Based on the name approval provided by the Government, the Partners of the LLP can submit an application for incorporation of LLP to the Government along with the necessary documents including the subscribers’ sheet. If the application is acceptable, MCA would provide an incorporation certificate for the LLP and business can commence.
LLP Agreement Filing
On incorporation of the LLP, LLP Agreement must be signed and filed by the Partners within 30 days. Failure to file LLP agreement on-time could result in heavy penalty that accrues on a daily basis. Hence, it is important to quickly file the LLP agreement and complete the LLP incorporation process.