FDI in LLPs may ring cash registers of financial services

The new rules on foreign direct investment (FDI) in Limited Liability Partnership (LLP) firms seems to have excited many, especially financial services’ providers in Gujarat, as the move seems set to give them an edge over international peers.

A LLP firm is a hybrid of a partnership firm and a corporate body. Recently, the government had opened the doors for FDI in LLP firms, on certain conditions.

The move may benefit small partnership firms having operations in financial services, legal advisory and civil engineering consultants.

“Allowing FDI in LLP is a big push for financial services’ providers. This will add more value to the businesses of small partnership units and bring professionalism in operations. The investment banking business will get more teeth,” said Sanjeev Shah, an investment banker in Vadodara.

According to Shah, the overseas funding will improve the operations and bring global expertise in the respective sectors.

Among the most promising sectors for FDI are financial services that includes accounting, financial management and investment banking. Other sectors like civil and structural engineers and legal advisories, too, are some of the most likely sectors to get FDI via LLP.

Experts see FDI opening newer avenues for Indian entities in the form of expanded geographies for operations and competitive advantage in the international market.

However, the FDI in LLPs is allowed through government approval only in sectors where there is 100 per cent FDI allowed under the automatic route. Experts see this development as a step towards liberalising the financial affairs of the companies further.

Meanwhile, with the recent notifications from the ministry of corporate affairs allowing chartered accountants to form LLP firms, the prospects for global partnerships between accounting firms has increased.

“The ministry’s notifications has come as a big relief. This would strengthen the position of the domestic accounting firms under this business,” said P K Modi of PKM Advisory in Ahmedabad.

The LLP Act was enacted in 2008 and notified in April 2009. Since then, 4,900 LLPs have come into existence. But regulatory hurdles make it difficult to successfully convert a partnership business entity into an LLP.

“There have been government regulations, which requires a formal approval from the regulatory body to convert a partnership firm into a LLP. This deters change,” said an Ahmedabad-based chartered accountant.