About the client:
Foreign investment is permitted under the automatic route in LLP operating in sectors/activities where 100% Foreign Direct Investment (FDI) is allowed through the automatic route and there are no FDI-linked performance conditions. As of now, payment by an eligible foreign investor towards capital contribution/profit share of LLPs is allowed only by way of cash consideration.
Our client, which is an LLP has been in existence for over two years. The main object of the Limited Liability Partnerships (LLP) is to act as an advisor, consultant, management consultant, and to render all other related services to clients in India and abroad and also to act as a manager of Alternative Investment Fund (AIF). The Limited Liability Partnerships (LLP) in reference is approved as a Fund Manager for an Alternative Investment Fund (AIF) and is exempted to get itself registered with SEBI as per sub clause (h) of Regulation 4 of Securities and Exchange Board of India (Investment Advisers) Regulations, 2013.
Our client intended to receive a capital contribution in the form of Foreign Direct Investment (FDI). We being their Corporate Secretarial Consultants had to advise them from the perspective of the Limited Liability Partnership Act, 2008 and Foreign Exchange Management (Non-debt Instruments) Rules, 2019, and also undertake the compliance requirements.
Our association and work
We have been associated with the client since incorporation. Receipt of capital contribution by an Limited Liability Partnership (LLP) in the form of FDI broadly involves eligibility check, compliance with pricing norms and reporting requirements to the Reserve Bank of India which we had undertaken. The series of activities involved in the process are enumerated below:
1. As a first step, we had to analyze whether the LLP is eligible to receive FDI, as the eligibility criteria to accept FDI is that the LLP should be operating in sectors/activities where 100% FDI is allowed through the automatic route and there are no FDI linked performance conditions.
Contribution to the Capital of an LLP would be an eligible investment and investment by way of ‘profit share’ will fall under the category of reinvestment of earnings.
2. In the present case, the eligible investment was by way of capital contribution so we had to advise the client on the pricing norms. The condition to be applied in pricing is that the Foreign Direct Investment in an LLP either by way of capital contribution or by way of acquisition or transfer of profit shares would have to be more than or equal to the fair price as worked out with any valuation norm which is internationally accepted and adopted
3. We coordinated with the client and the valuers for the Valuation certificate and obtained the same after which the contribution could be brought in through inward remittance by way of normal banking channels.
4. Once the contribution was received, we undertook the FDI Reporting to RBI through an Authorised Dealer by preparation and filing of Form Foreign Direct Investment - LLP - I within 30 days from the date of receipt of consideration by attaching FIRC /Debit statement and KYC, as applicable, Valuation report and declaration and the certificate from the designated partner/ authorized representative in the specified format as mentioned in the RBI user manual.
5.Post filing, we followed up with the Authorised dealer bank for getting the Form LLP I approved with Reserve Bank of India. The Form LLP-I was then approved and taken on records by the Reserve Bank of India.
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