Limited liability partnership means a partnership formed and registered under THE LIMITED LIABILITY PARTNERSHIP ACT, 2008. Incorporation of LLP with foreign partner is one of India’s newest forms of business entity introduced through LLP act, 2008. An LLP is a limited liability partnership where each partner has limited personal liability for debts or claims of the partnership. It is unique type of firm which gives the opportunity of partnership and company in single business entity.
LLP with foreign partner or NRI is the structure which is in long use globally, and proven to be advantageous for professionals and investors. By allowing incorporation of LLP with foreign partner, India has taken a great initiative which provide foreign investors benefit from inherent flexibility and tax efficient LLP structure. With make in India Initiative LLP registration for NRI and Foreign Nationals is online and easy process. Foreign nationals who want to invest in India want to explore Indian Market then LLP registration is one of simple mode of business.
Here in LLP with foreign NRI partner, liability of partner’s including foreign investors is limited i.e., up to a fixed contribution. Unlike partnership joint liability cannot be created on all partners by any illegal or independent act of other partner. in LLP with foreign partner has its separate legal existence in form of body corporate.
Earlier NRIs and foreign investors starting or investing in business in India have mainly done through private limited company as 100% FDI is allowed. But now government has allowed 100% FDI in LLP with foreign partner under automatic route. Also, company that has received foreign investment can now be easily converted into in LLP with foreign partner under automatic route.
Before relaxation of norms of FDI, LLP registration and investment in India was difficult process and as result of that company registration option was preferred by foreign companies & NRIs. But now incorporation of LLP with foreign partner become quickly popular among foreign company’s and NRIs due to its features such as low registration cost, less compliance as compared to private limited.
Another advantage of LLP with foreign partner is that partners are free and have option to quit from LLP or transfer interest in LLP provided it is as per LLP agreement. LLP allows greater flexibility to partners.
Earlier NRI and foreign companies mainly invest in private limited companies since it is allowed to have 100% FDI. But after changes in FDI regulations by government, now 100% FDI is permitted in LLP with foreign partner for business operating in sectors/activities where 100% FDI is allowed under automatic route and there will be no FDI-linked performance conditions. Hence foreign companies or investors who wanted to setup small medium sized start up in India can carry business through incorporating LLP with foreign partner.
1.Person who is resident outside India (other than citizen of Pakistan & Bangladesh)
2.An entity incorporated outside India (other than citizen of Pakistan & Bangladesh)
3.Non-resident Indian (NRI)
Foreign portfolio investors (FPI) or foreign venture capital investors (FVCI) are not allowed to bring FDI in LLP with foreign partner. Also, LLP with FDI cannot operate in agricultural/plantation activity, print media or real estate business.
FDI in an LLP with foreign partner can be made either by way of capital contribution or by way of acquisition/transfer of profit shares. However, FDI in LLP will be subject to compliance with regulations and conditions of Limited Liability Partnership Act, 2008.
Documents required for LLP registration from Indian Partner:
Documents required from foreign investors
A minimum 2 people are required for registering LLP with foreign partner in India. And at least one of the partners of LLP should be both Indian citizen and resident. In simple, there must be minimum 2 designated partners and no limit on maximum number of partners. LLP Act allows foreign nationals including foreign companies & LLPs to incorporate an LLP with foreign partner in India provided at least 1 (one) designated partner is resident of India.
Steps involved in process of registering LLP are discussed below:
Application for obtaining DSC (digital signature certificate): A DSC is essential for obtaining Designated Partner Identification Number (DPIN) the proposed partners of LLP. DSC can be obtained for both foreign national or Indian by submitting DSC application.
Application for obtaining DPIN: Designated partners identification number is similar to DIN. If person holds both DPIN and DIN, then DPIN will stand cancelled. It is compulsory for all partners to have DPIN/DIN.
Application for name availability of the proposed LLP to MCA: Once DSC and DIN are obtained, an application for reservation of name is to be filed with MCA. Application can have up to four options for names and it needs to unique and distinct. Any partner or designated partner can submit application on behalf of LLP with foreign partner.
Filing incorporation documents & forms: When name is reserved by registrar fill up Form-2 “Incorporation document and statement” with applicable fee. Details related to registered office, business activity to be carried out by LLP, partners & their contribution are required in form. Additionally, documents such as subscribers’ sheet, consent of partners are to be submitted along with incorporation application.
Certificate of Incorporation of LLP: On submission of complete documents, registrar if is satisfied , register the LLP maximum within 14 days of filling Form-2 and issue Certificate of incorporation of LLP.
Drafting & filing LLP agreement: LLP agreement is agreement among the partners of the LLP, which specify roles, responsibilities, terms and conditions on governance of LLP. This is like charter document of LLP. Once incorporation certificate of LLP with foreign partner is issued, LLP agreement is required to be signed and filed within 30 days from incorporation to registrar. Failure to comply with this can attract huge penalty so it is important to file on time.
While calculating income for tax purpose of LLP with foreign partner we need to consider income from house property, capital gains and other sources if any in addition to income from business and profession. For calculating taxable income of LLP all expenses which are allowed as deductions under PGBP reduced by allowable partners salary and interest from calculated profit.
Partner’s interest is allowed as deduction if payment of interest is authorized by LLP agreement, payment is made after constitution of LLP and rate of interest is not more than 12%.
Further section 40b of income tax specifies conditions for deduction of partners salary and remuneration. It is allowed as deduction only if it is paid to working partners, authorized by LLP agreement, related to period after constitution of LLP with foreign partner and most importantly remuneration/salary within permissible limit.
It is allowed for LLP with foreign partner to claim unabsorbed losses, allowable deductions under chapter VI such as 80G, 80GGA, 80IA, etc.It is to be noted that share of partners in total income of LLP is exempt in hands of partners because it is already taxed in hands of LLP. Tax rate applicable to LLP with foreign partner in India is 30%. Whereas, LTCG are taxed at 20% and STCG are taxed at 15%. Health and education cess of 4%is compulsorily levied on amount of tax and surcharge. Incase taxable income including capital gain exceed Rs.1crore surcharge @12% is applicable. LLP with foreign partner are also need to comply with Alternate Minimum Tax (AMT) rules. Accordingly, tax payable by LLP cannot be less than 9% of adjusted total income as per 115JC. Similarly, provisions of advance tax are also applicable to LLP with foreign partner. Tax payable by LLP with foreign partner can be paid by physical mode through bank or electronically by e-banking.
LLP Agreement is a written contract between the partners of the LLP or between the LLP and its designated partners. It defines the rights and duties of the designated partners toward each other as well toward the LLP. A well structured LLP with foreign partner agreement is important for efficient and smooth functioning of LLP. Every standard and structured LLP agreement should have following mandatory and important contents:
1.Name of LLP with foreign partner
2.Date of agreement
3.Parties to agreement including foreign company/investors
4.Place of business and business activity
5. duration of LLP
6.Information about partners, their contribution, profit sharing, rights & duties.
7.Management & fiduciary duty
8.Allocatio and distribution of profits
9.Accounting and auditing, etc.
Incase LLP wants to close its business or no business activity by LLP for last 1year then , LLP can apply to registrar to remove its name from registrar. LLP has two options to close its business:
Option 1: Winding up of LLP: Winding up refers to a process where all assets of LLP are disposed of by LLP liquidator to meet all liabilities of LLP and surplus if any is divided among partners. To start the process of winding up of LLP, resolution for winding up of LLP must be passed by partners of LLP and filed with registrar within 30 days from passing of resolution.
Option2: Declaring LLP as defunct: The e-Form 24 is requisite to be filed for striking off the name of LLP. Registrar can himself voluntarily strike off the name if it deems fit to de so.
A N Bhutada & CO is a Chartered Accountant firm in India that can help in LLP Registration for forign nationals or NRI in India with of foreign nationals or NRI. We are team of CA , CS , LLP for your all compliances need. We already assisted clients from USA , Japan , Europe , Australia etc. for company registration in India.