The economic landscape of India has witnessed several changes over the past few decades. The Indian Economy is booming to attract investments and entrepreneurs from across the globe. With reforms aimed at ease of doing business, India has become an attractive destination for NRIs (Non-Resident Indians) and foreign nationals seeking to establish a business presence in one of the world’s fastest-growing economies. One of the most popular business structures today is the Limited Liability Partnership (LLP). The concept of LLP was introduced in India under the Limited Liability Partnership Act of 2008. A Limited Liability Partnership (LLP) is a hybrid business entity that combines the benefits of both the limited liability of a company and the flexibility of a partnership. The personal assets of the partners are protected from the debts and liabilities of the business. The government, with its initiative to promote ease of business, has allowed 100% FDI in LLP. LLPs allow better ease of management, a quick and easy registration process, and lower compliances than private limited companies, making them the preferred business structure for NRIs and foreign nationals.
In this blog, we shall explain in detail what an LLP is, why a foreign national should choose an LLP Structure, Eligibility for NRIs and foreign nationals, the key documents required, and the step-by-step registration process.
What is an LLP?
A Limited Liability Partnership (LLP) is a type of hybrid business structure that combines aspects of companies and partnerships. It enables partners to take advantage of limited liability, which shields their assets from the firm’s obligations and liabilities.
Why Choose an LLP?
The Limited Liability Partnership provides the following benefits:
- Limited Liability Protection: The main advantage of an LLP is that it offers limited liability protection. Partners are only liable to the extent of their investment in the LLP, which means that their personal assets remain safeguarded from business liabilities and debts.
- Flexibility in Operations: LLPs are subject to fewer regulations than ordinary companies. They can make decisions more freely because they don’t need a board of directors or yearly general meetings.
- Tax Advantages: Like corporations, limited liability partnerships (LLPs) are subject to income tax; however, they are exempt from dividend distribution tax and can seek tax deductions under several provisions of the Income Tax Act of 1961.
- Attract Global Investment: The LLP structure is perfect for foreign nationals and NRIs. They can now participate in the Indian economy without having to deal with the onerous regulations that come with being a limited company. It offers an open, investor-friendly framework that complies with Indian laws.
- 100% FDI: Prior to November 10, 2015, the Indian government did not allow foreign citizens and non-resident Indians to own 100% of incorporated LLPs. However, 100% FDI in LLPs has made it possible for business owners to operate in a variety of industries. LLPs can now invest in other LLPs and businesses.
Eligibility for NRIs and Foreign Nationals
NRIs and international investors must adhere to specific rules and regulations. The eligibility criteria to incorporate an LLP by NRIs and foreign nationals are as follows :
- Branch Office Requirements: NRIs and foreign nationals, though not residing in India, are allowed to register an LLP. They need prior approval from the RBI to open a branch office in India.
- Compliance with FEMA Regulations: The Foreign Exchange Management Act (FEMA) governs investments by non-residents in India. NRIs and foreign nationals must comply with FEMA regulations. They may also be required to seek approval from the Reserve Bank of India (RBI) for certain types of investments.
- Capital Investment: There is no minimum capital requirement for LLPs in India. However, NRIs and foreign investors must clearly show the source and legitimacy of funds used in the business.
- Directorship Restrictions: The Designated Partners of the LLP must obtain a Digital Signature Certificate (DSC) and a Director Identification Number (DIN).
Documents Required for LLP Registration for Foreigners
NRIs and foreign nationals need the following documents for LLP registration in India:
1. Personal Identification and Address Proof:
All the Designated Partners of the LLP must provide:
- DSC and DIN Certificates
- Declaration and Consent Forms of all the designated partners confirming their consent to be listed as the Designated Partner.
- A notarized copy of their passport(s)
- Recent passport-sized photographs
- A valid visa or residence permit (if applicable).
- Recent utility bills and Bills or Bank Statements for the last 2 months
NOTE: It is pertinent to note that these documents may need notarization or apostille certification.
2. Incorporation Documents:
- Proof of Capital Investment
- A letter from the bank can sometimes be required to verify the financial standing of the investors.
- Power of Attorney (if applicable): If an agent or representative is acting on behalf of the foreign investor, a notarized Power of Attorney is required.
Step-by-step Process for LLP Registration in India for NRIs and Foreign Nationals
Step 1: Obtain a Digital Signature Certificate (DSC) and Director Identification Number (DIN)
DSC and DIN are mandatory for the Designated Partners of the LLP’s. Before initiating the incorporation of a Limited Liability Partnership (LLP), the Designated Partners must obtain a Digital Signature Certificate (DSC) and a Director Identification Number (DIN) from the authorized agency and the Ministry of Corporate Affairs (MCA) respectively.
Step 2: Apply for Name Reservation
It is essential to choose a unique and non-similar name for the LLP. The name must not be similar or identical to any existing registered entity. The Application for name reservation shall be filed at the MCA portal via the RUN-LLP (Reserve Unique Name for LLP) Application. Once approved, the name shall be reserved for 20 days.
Step 3: File the Incorporation Forms
After getting the name approval, you must file the incorporation application with the Ministry of Corporate Affairs (MCA) within 60 days. Once you have the Digital Signature Certificate (DSC), Director Identification Number (DIN), and the approved name, the next step is to submit the required forms on the MCA portal. The following documents need to be attached:
- Form FiLLiP
- Supporting Documents such as identity proofs, address proofs, and consent letters from the designated partners.
Step 4: LLP Agreement
The LLP Agreement is the backbone of the LLP’s business structure. It defines the rights, responsibilities, profit-sharing arrangements, business operations, management, etc. The signed and notarized LLP Agreement must be filed with the MCA within 30 days from the LLP’s date of incorporation.
Bank Account Opening and Other Post-Incorporation
Once your LLP is officially registered, several post-incorporation formalities must be completed to ensure smooth operations such as:
- Opening a Bank Account of the LLP
- PAN and TAN Registration
- GST Registration, if applicable
- Other compliance requirements include annual filing for LLP, submission of financial statements, maintenance of books of accounts, records of financial transactions, and minutes of meetings with the MCA.
Conclusion
For foreign citizens and NRIs, registering an LLP in India is a great way to launch a company in one of the fastest-growing economies in the world. LLPs are a popular choice for international investors because they provide limited liability protection, operational flexibility, and a favorable tax structure. The steps include obtaining a Director Identification Number (DIN), a Digital Signature Certificate (DSC), reserving a name, filing an incorporation application along with documents, and drafting an LLP Agreement. Merely incorporating an LLP is not enough; incorporation compliances like opening a bank account, maintaining books of accounts, annual filings, submitting minutes of meetings, and maintaining records of financial transactions with the MCA.
Frequently Asked Questions
1. What is an LLP, and how is it different from a private limited company?
An LLP (Limited Liability Partnership) is a business structure that combines the benefits of a company and a partnership. Unlike private limited companies, LLPs have fewer compliance requirements, no mandatory board meetings, and allow partners to manage the business directly with more flexibility.
2. Can NRIs and foreign nationals register an LLP in India?
Yes, NRIs and foreign nationals can register an LLP in India. However, they must meet specific documentation requirements and comply with FEMA regulations and other legal formalities for non-residents.
3. What documents are needed for LLP registration?
Notarized copies of your passport, address proof, a valid visa or residence permit, DSC and DIN certificates, a bank reference letter, and a detailed LLP Agreement. The MCA may also require additional documents.
4. How long does it take to register an LLP in India?
If all documents are in order, the process usually takes 2 to 4 weeks.
5. Is there a minimum capital requirement for LLP registration?
No, there is no minimum capital requirement. However, the investment should be sufficient to support the business.
6. Do I need to be in India to register an LLP?
No, you don’t have to be physically present in India. However, you must have a registered office address in India and may need local representatives for certain formalities.
7. What are the compliance requirements after registering an LLP?
LLPs must file annual returns, maintain financial records, conduct audits (if applicable), and comply with GST and other tax regulations.
8. Can an LLP be converted into a private limited company?
Yes, an LLP can be converted into a private limited company.
