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THE GOVERNMENT is working to bring limited liability partnerships (LLPs) within the scope of foreign direct investment guidelines, a move which will facilitate the inflow of overseas capital through a corporate structure that has just recently been allowed in India.

   LLPs, which combine the features of partnerships and limited liability companies, are the preferred corporate structure for the services sector globally, particularly tax-accounting and law firms.

   The ministry of corporate affairs, which administers the LLP Act that came into effect in April, and the department of industrial policy and promotion which administers FDI policy, are working to amend FDI guidelines, a government official said. The rule change is expected to happen in a few months.

   The LLP Act provides for crossborder LLPs but the foreign investment policy, particularly the guidelines for calculating FDI in an Indian company, only covers companies at present. Bringing LLPs within the FDI ambit will facilitate the establishment of cross-border LLPs through which entrepreneurs in India can start business ventures with foreign investors. Since an LLP partner is not liable for the wrongdoing of other partners, entrepreneurs who do not know each other will be willing to come together and start a business.

   “Like companies, LLPs are also well regulated corporate entities,” the official said, explaining why FDI guidelines should accommodate this corporate structure.

   Extending the FDI norms to LLPs is expected to give rise to large partnership firms with foreign investment, particularly in the services sector. Nearly 250 LLPs have been registered in India since April, when the LLP Act came into force.

   Earlier this year the government provided for the taxation of LLPs under the IT Act on lines similar to general partnerships. LLPs are not required to pay dividend distribution tax or a surcharge.

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