Ashesh Singh 01 April 2024

Are fema compliances necessary for funds received in llp by promoter

For LLP with capital of Rs. 1 Lac one major partner is NRI & has transferred $15k & $30k (total amounting to around Rs. 38L) with FDI purpose code P0006. Banks wants us to do FEMA compliances but we are requesting bank to treat this as non-repatriable investment. My queries are:

1. is it possible or do we need to do FEMA compliances?

2. are we required to and/or can we increase the capital of LLP from Rs. 1 L from back date as RBI form LLP-1 is not accepting & showing error as LLP with 1L capital cannot accept 38 L as foreign contribution.

3. The LLP doesnt want to do FEMA compliances in FDI route, so anyway to do so in facts & circumstances mentioned above. Further, as the cost of projects is not final yet is the LLP required to increase its capital everytime it wants to receive funds?

I shall be grateful if experts may shed light over these queries.

Regards

Ashesh

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T. Kalaiselvan, Advocate (Advocate) 01 April 2024

1. NRI or OCI can contribute to the capital of an LLP on non-repatriation basis. The contribution has to be made by way of inward remittance from abroad through banking channels or out of funds held in NRE/ FCNR(B)/ NRO A/c maintained in accordance with FEMA regulations.

2. Where can you invest? NRIs are permitted an unlimited amount of investment options through repatriable and non- repatriable transactions. As per FEMA (NDI) Rules, 2019, “FDI” or “Foreign Direct Investment” means investment through equity instruments by a person resident outside India in an unlisted Indian company; or in 10% or more of the post issue paid-up equity capital on a fully diluted basis of a listed Indian company. Hence, investment in equity instruments only amounts to FDI.

3. FDI in an LLP is only permitted through the automatic route. the government brought out a change to allow foreign direct investment in a partnership. Before this move, the RBI permitted FDI only for companies and capitalists. A relaxation was brought out to allow Foreign Direct Investment in an LLP. .

LLP engaged in certain sectors/activities shall not be eligible to accept FDI.