Essar favours FDI in Limited Liability Partnerships

Ruia-led conglomerate Essar Group is in favour of allowing foreign direct investment in limited liability partnerships (LLP) as it will help attract overseas funds in capital intensive sectors.

"FDI should be permitted in LLP as it would open yet another channel for implementation of the government policy of moving towards liberalisation and attracting foreign investment," the Essar Group said in response to a discussion paper floated by the Industry Ministry on FDI in LLPs.

A Limited Liability Partnership (LLP) is an alternative corporate business vehicle that provides the benefits of limited liability, but allows its members the flexibility of organising their internal structure as a partnership based on a mutually arrived agreement.

It allows an unlimited number of partners to form a business outfit with limited liability and conduct operations.

Besides LLPs, the business models widely adopted in the country include proprietorships, partnership firms and companies.

Following the enactment of the LLP law in 2008, about 3,200 business entities have registered themselves as LLPs.

In its submission, Essar Group said the large number of registrations showed that the new business model was in "no way restricted in its suitability to small businesses. It has also proved to be advantageous for various large capital intensive sectors as well."

It further said that countries like the UK and Singapore permit foreign direct investment (FDI) in LLPs.

It suggested that initially, "FDI may be permitted under the automatic route for sectors where presently 100 per cent is allowed with minimum regulations."

FDI up to 100 per cent is allowed through the automatic route in a number of sectors like power generation, construction and development, telecom equipment manufacturing, Special Economic Zones and new airports.

Under the automatic route, a foreign company can invest in India without seeking prior approval from the FIPB. But the Reserve Bank needs to be informed about the investment inflows.

In its discussion paper, the industry ministry had indicated that FDI in LLPs might be allowed in sectors that are already completely open for foreign investment.

Arguing that defining ownership, control and valuation is difficult under the LLP format introduced in April, 2009, the DIPP raised the question of whether it would be prudent to permit investment by FIIs, or through external commercial borrowings.

The Essar Group, however, said that FDI in LLPs engaged in agricultural or plantation activities or real estate should be prohibited.

The group is a leading player in the sectors like steel, oil and gas, communications and minerals.