FDI in an Indian LLP: Eligibility, Conditions and Reporting Requirements

FDI in an Indian LLP is allowed through the automatic route only where the LLP operates in a sector open to 100% foreign investment under that route, with no FDI-linked performance conditions, as set out in Schedule VI of the FEMA (Non-Debt Instruments) Rules, 2019. Foreign portfolio investors and foreign venture capital investors cannot invest. Under amendments notified on 2 May 2026, an investor from a country sharing a land border with India, or one in which a person from such a country owns more than 10% or has control, also cannot invest in an LLP; investors with a smaller link can invest, subject to RBI reporting. The LLP must report the investment to the RBI in Form LLP-I within 30 days of receiving the funds.

In practice, that rules out more sectors and investors than most founders expect, so check both before any money moves.

What Is FDI in an Indian LLP?

FDI in an LLP means a person resident outside India contributing to the capital of an Indian LLP, or acquiring a profit share in it. The governing rules are in Schedule VI of the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (NDI Rules).

One point of precision: the NDI Rules define "FDI" as investment through equity instruments in an Indian company. An LLP has no shares, so legally this is "foreign investment in an LLP". The industry calls it FDI in LLP, and so do we, but the distinction explains why company rules do not carry over automatically.

A capital contribution is the money a partner brings in under the LLP agreement. A profit share is a partner's entitlement to the LLP's profits. Under Schedule VI(b), investment by way of profit share counts as reinvestment of earnings.

Capital contribution is not a loan. If a foreign party lends money to an LLP, that is a debt transaction governed by the ECB framework, not by Schedule VI. Mixing up the two is a common and costly error.

NRI and OCI investment on a non-repatriation basis works differently. Under Schedule IV of the NDI Rules, an NRI or OCI can contribute to an LLP's capital on a non-repatriation basis. That investment is treated as domestic investment, on par with a resident's. Schedule VI's sector test, the fair-value pricing rules and Form LLP-I do not apply. There are two trade-offs. The capital and its returns cannot be freely taken out of India, and this route is not available for LLPs in agriculture or plantation, real estate business, or print media. The rest of this article deals with repatriable investment.

If a foreign company's business falls outside the LLP-eligible sectors, or it plans to raise equity later, a foreign subsidiary set up as a private limited company is usually the better vehicle.

Is Foreign Investment Allowed in an Indian LLP?

Each of the three conditions has more detail than the summary suggests.

1. The sector must allow 100% foreign investment under the automatic route. If the sector cap is 74%, or anything above a threshold needs government approval, an LLP in that sector cannot take foreign money at all. The sector caps are set out in Schedule I of the NDI Rules and the DPIIT FDI policy.

2. No FDI-linked performance conditions may apply. The RBI Master Direction defines these as the sector-specific conditions in Schedule I for companies receiving foreign investment. Construction development, single-brand retail trading and e-commerce marketplaces are clear examples: each allows 100% FDI under the automatic route for companies, but only subject to sector-specific conditions, so LLPs in those sectors are excluded. How broadly "performance condition" should be read is not fully settled; take advice before relying on a borderline sector.

3. The investor must be eligible. Schedule VI(a) excludes Foreign Portfolio Investors and Foreign Venture Capital Investors, and citizens or entities of Pakistan and Bangladesh. For countries sharing a land border with India, the rule changed under the NDI (Amendment) Rules, 2026 (S.O. 2174(E)), notified on 1 May 2026, which give effect to Press Note 2 (2026 Series). It now works in two tiers:

•   Cannot invest in an LLP: the investor is a citizen or entity of a land-border country, or citizens or entities of such a country own more than 10% of the investor (beneficial ownership under the PML Rules) or have control over it. These investments need prior government approval, and because an LLP has no government-approval route, they cannot be made into an LLP at all.

•   Can invest, with reporting: where the land-border link does not exceed 10% and carries no control, the investment can proceed under the automatic route, but must be reported to the RBI in the form and manner it specifies.

The earlier Press Note 3 (2020) reading, under which any land-border beneficial owner, however small, could trigger approval, no longer applies.

Finally, Schedule VI(c) makes every investment subject to the LLP Act, 2008. For a foreign-owned LLP, the key rule is that it needs at least two designated partners who are individuals, at least one resident in India (120 days or more in the financial year).

If the LLP is not yet formed, plan these points at incorporation. Our LLP registration service covers the designated partner setup, LLP agreement and Form 3 filing.

Eligibility and Conditions for FDI in an LLP

The valuation requirement applies to the investment itself, not just transfers. A newly formed LLP with nominal contribution still needs a fair-value basis on record; your CA will decide what supporting certificate fits the facts.

FEMA Rules Applicable to Foreign Investment in an LLP

Five layers of law apply, and they must be read together.

1.    Foreign Exchange Management Act, 1999. The parent statute. Every rule and regulation below is made under it; check the latest amendments to FEMA itself for penalty and compounding provisions.

2.    NDI Rules, 2019. Issued by the Central Government. They decide whether the investment is allowed: Schedule VI sets eligibility, valuation and conversion rules for LLPs.

3.    Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019. Issued by the RBI. They decide how money moves and what must be reported. Regulation 4 sets the LLP-I and LLP-II obligations.

4.    RBI Master Directions. The Master Direction – Foreign Investment in India and the Master Direction on reporting explain procedure, forms and the FIRMS portal.

5.    LLP Act, 2008. Governs the LLP itself: partners, agreement, filings with the Registrar.

The NDI Rules tell you an investment is permitted; the reporting regulations tell you how to make it legally complete. Satisfying one without the other still leaves a contravention.

Debt versus non-debt instruments. You may also see the Foreign Exchange Management (Debt Instruments) Regulations, 2019. These govern non-residents' investment in Indian debt securities such as bonds and government securities. Loans from abroad fall under a separate framework: the Foreign Exchange Management (Borrowing and Lending) Regulations, 2018, substantially amended by the First Amendment Regulations, 2026 with effect from 16 February 2026. That amendment made LLPs eligible to raise external commercial borrowings (ECB) for the first time. It also moved the ECB rules out of the RBI Master Direction and into the regulations themselves. A foreign-funded LLP can now borrow from abroad, but a loan stays a loan. It follows the ECB rules, including obtaining a Loan Registration Number through Form ECB-1 before drawdown, not Schedule VI. Neither framework applies to an ordinary capital contribution, which is governed by the NDI Rules.

LLP-I and LLP-II Filing Requirements

Both forms are part of the Single Master Form on the RBI's FIRMS portal. Before the first filing, the LLP must register as a business user and create its Entity Master.

The 30-day clock starts on the date the money is received, not on the date of the LLP agreement or the MCA filing. Where there are several foreign investors, each needs its own LLP-I.

Common reporting mistakes include filing after MCA records are updated but missing the RBI deadline, uploading a valuation certificate dated after the transaction, and leaving the Entity Master incomplete so the form cannot be submitted. A late filing does not cancel the obligation. It can usually be regularised through a late submission fee or compounding, at the RBI's discretion.

If a filing is pending or already late, our FEMA compliance and RBI reporting team can review the position before you file.

How to Complete FEMA Reporting for Foreign Investment in an LLP

1.    Confirm investor and sector eligibility. Statutory. Map the LLP's actual activity to the sector list and screen the investor's ownership chain for land-border links.

2.    Review the LLP agreement and investment terms. Statutory and practical. The agreement must reflect contribution, profit share and the resident designated partner. Update it and file Form 3 (and Form 4 for new partners) within 30 days of the change.

3.    Confirm the mode of payment. Statutory. Inward remittance through banking channels or debit to NRE/FCNR(B). Cash or third-party payments do not qualify.

4.    Coordinate with the AD bank. Practical. Tell the bank the purpose code in advance and obtain the FIRC or equivalent advice and KYC promptly.

5.    Collect transaction and valuation documents. Statutory for valuation; practical for the rest. Get the fair-value certificate dated on or before the transaction.

6.    File LLP-I (or LLP-II) on FIRMS. Statutory. Submit within the deadline and respond to any AD bank queries.

Keep acknowledgements and records. Practical. Store the acknowledgement, bank papers and certificates together. They are needed for audits, conversions and the annual Foreign Liabilities and Assets (FLA) return, where applicable.

Can an LLP Engage in Investment Activities?

It depends on the activity, not the entity type. Being allowed to receive foreign investment and being allowed to carry on a given business are separate questions.

Holding investments, lending or running a fund usually brings in RBI, SEBI or other sector rules. Whether a particular financial-services activity carries FDI-linked conditions needs case-by-case review, so do not assume a foreign-funded LLP can carry it on. A foreign-owned LLP that invests in another Indian entity is making a downstream investment, which is permitted only where both entities operate in 100% automatic-route sectors without performance conditions, and must be reported in Form DI. Check each layer before assuming an LLP structure works.

Common FEMA Compliance Mistakes in LLPs

•   Accepting money before checking the sector. Fix: do the sector and investor screen before the LLP agreement is signed.

•   Treating a loan as contribution : document capital contribution in the LLP agreement. If you need debt, raise it as ECB (LLPs have been eligible borrowers since 16 February 2026) and obtain a Loan Registration Number before drawdown.

•   Wrong payment route. Fix: only inward remittance or NRE/FCNR(B) debits.

•   Missing the 30- or 60-day window. Fix: diarise from the date funds are credited.

•   Unsupported valuation. Fix: obtain a certificate from an eligible professional, dated on or before the transaction.

•   Poor records. Fix: keep one file per transaction.

•   Copying company rules. Fix: remember LLPs have no approval route, no share swaps, and different forms.

Frequently Asked Questions

1. Can an LLP raise funds from investors in India?

Yes. Resident individuals or companies can join as partners and contribute capital under the LLP agreement, which must be updated and filed with the Registrar. An LLP cannot issue shares, so equity-style funding from VCs is limited. Domestic funding does not trigger FEMA reporting. Contributions from non-residents generally do, through Form LLP-I. The exception is an NRI or OCI contributing on a non-repatriation basis, which is treated as domestic investment.

2. What is the FDI 10% rule?

It separates FDI from foreign portfolio investment in listed Indian companies. A non-resident holding 10% or more of a listed company's post-issue paid-up equity (fully diluted) is treated as FDI; below 10% is portfolio investment. It is not an ownership cap and has no role in LLP eligibility.

3. Can an LLP engage in investment activities?

Only where the activity is lawful for an LLP and meets any sector regulator's requirements. For a foreign-funded LLP, the activity must also fall within a 100% automatic-route sector without FDI-linked performance conditions. Investment and financial-services activities need case-by-case review against this test, so get the activity checked first.

4. Is 100% FDI allowed in an Indian LLP?

Yes, if the LLP operates in a sector where 100% foreign investment is permitted under the automatic route and no FDI-linked performance conditions apply. A foreign partner can hold all the contribution, but the LLP still needs at least one resident designated partner under the LLP Act.

5. What is LLP-I filing?

Form LLP-I reports a non-resident's capital contribution or acquisition of profit share in an LLP. The LLP files it on the RBI's FIRMS portal within 30 days of receiving the funds, with bank and valuation documents. The AD bank reviews it before the RBI accepts it.

6. What is LLP-II filing?

Form LLP-II reports disinvestment or transfer of capital contribution or profit share between a resident and a non-resident, in either direction. The resident transferor or transferee files it on FIRMS within 60 days of receipt of funds. Pricing must respect the fair-value floor or ceiling.

7. Can a foreign-owned LLP be converted into a private limited company?

Yes, under the automatic route, if the LLP is in a sector permitting 100% foreign investment under the automatic route with no FDI-linked performance conditions. The conversion is done under the Companies Act, and the resulting shareholding has its own FEMA reporting; confirm the form with your adviser. 

Conclusion

Foreign money can enter an Indian LLP, but the door is narrower than for a company. Check three things before any funds move: the sector qualifies for 100% automatic-route investment with no performance conditions, the investor and its owners are eligible, and the payment, valuation and reporting steps are lined up.

If you are setting up an LLP with a foreign partner or need to report investment already received, StartBusiness's CA/CS team can review your structure and handle the filings. Talk to an expert for a free 15-minute consultation.