With approval of the move, the LLPs would get the opportunity to choose among domestic and foreign investors, creating a more competitive environment. The proposal is expected to encourage more partner firms to get converted to LLPs.
Limited Liability Partnership is a business structure that consists of hybrid features of partnership firm and a corporate body. In other words, a LLP is a mixture of a company's limited liability and the flexibility of a partnership firm. There were approximately 4,679 LLPs that were registered with Ministry of Corporate Affairs as on May 2.
The government approval is likely to be followed by some restriction in downstream investment. The restriction would a measure on the government part to prevent LLP from turning into new investment vehicles. The nod by the government would lead LLP to be full-owned by foreign investors.
Besides, ministry of corporate affairs that regulates LLPs, the FDI policy note is guided by the department of industrial policy and promotion. Therefore, the decision of the cabinet would also be helpful in providing a clarification of the clarity on the implementation of the two laws governing the segment.
The need for the clarification came into existence after the confusion took place regarding the 'person resident of India' as defined by the Foreign Exchange Management Act (Fema) and the LLP Act.