In India, partnership firms are a common vehicle for undertaking business activities on a small or medium scale. However, the existing legal framework for partnership firms is not as sophisticated as it is for incorporated companies. In order to help partnership firms operate in a flexible, innovative and efficient manner, the government has enacted the Limited Liability Partnership Act, 2008. The LLP Act reforms the existing legal framework for partnership firms in India by applying internationally accepted standards.
In contrast, no significant improvement has taken place recently in the government’s foreign direct investment (FDI) policy for partnership firms. FDI policy in relation to partnership firms is not as comprehensive or as liberal as it is for incorporated companies. Keeping in mind the needs of the present Indian economy, it is vital that government policy should promote partnership firms as a parallel vehicle for FDI, along with incorporated companies.
The current FDI policy dictates a different set of regulations for non-resident Indians (NRIs), persons of Indian origin (PIO) and those who are resident outside India. Furthermore, FDI is simply prohibited, without exception, in partnership firms or proprietary concerns that are engaged in agriculture or plantation activity, real estate businesses (that is, dealing in land and immovable property), or print media activity. By contrast, FDI policy is more liberal in the case of incorporated companies. FDI in print media, for example, is allowed under the approval route.
Rupesh Mishra is an associate at Khaitan & Co in Mumbai. The firm is a full-service law firm and has offices in Kolkata, New Delhi and Bangalore. The views expressed in this article are solely those of the author and do not necessarily reflect the views of Khaitan & Co.