Ind Min sounds cautious on allowing FDI in LLPs

The industry ministry today came out with a poser whether FDI in LLPs--a new form of business-- be allowed at all.

In a discussion paper, fifth in a series on different aspects of FDI policy, the ministry indicated that at best foreign direct investment in the Limited Liability Partnerships (LLPs) be allowed in sectors which are completely open for FDI.

Arguing that defining ownership, control and valuation, are difficult in the LLP formats introduced in April 2009, the Department of Industrial Policy and Promotion (DIPP) raised the question whether it would be prudent to permit investment by FIIs or through external commercial borrowing.

"Should FDI be permitted in LLPs at all? Can it be argued that given its limited attractiveness for large investments, allowing FDI in LLPs will not significantly accelerate FDI into the country while disproportionately increasing the regulatory burden?" it asked suggesting a calibrated approach for induction of FDI.

The DIPP's cautious views about LLPs coincide with the Ministry of Corporate Affairs seeking modification in tax structure for companies willing to convert into the new form of business.

The MCA has asked the Finance Ministry to raise the turnover ceiling for tax exemption from the present Rs 60 lakh to Rs 1 crore.

At present, firms having a turnover of less than Rs 60 lakh in the previous three years are exempted from paying capital gains tax during the conversion.

LLP is an new business structure that has hybrid features of partnership firm and a corporate body -- a company's limited liability and the flexibility of a partnership firm.

The idea behind the new form was to provide professionals like lawyers and chartered accountants the with an opportunity to become a single-window facility.

According to official data, as on date there are about 2,385 LLPs registered since April 2009. The LLP Act was passed by Parliament in 2008.