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DIPP public consultation on FDI in LLPs; Appropriate also for law firms?

The department of industrial policy and promotion (DIPP) has invited discussions on whether foreign direct investments should be allowed into professional services firms including law firms incorporated as limited liability partnerships (LLPs).

The discussion paper, which is available on the DIPP’s website, has invited comments by 30 October on the issues with FDI into LLP firms, which could become more popular as a vehicle for private equity funds and other companies.

“The LLP model is attractive to professional sectors for its lower compliance costs, greater flexibility in operations, better control over management and limited liability. Many professionals in India, such as advocates/lawyers, chartered accountants and doctors are precluded from practicing through companies. The LLP structure would be particularly advantageous for providing such professional services,” stated the paper.

The issues the DIPP wishes to examine include whether FDI should 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? Does the present uncertainty on how this business model will proceed, as well its yet unestablished case law, magnify these concerns?”

Other concerns include whether FDI in LLPs should be phased in with sector restrictions with or without caps, conditionalities or entry route restrictions and whether an Indian partner is required.

In March of this year the Economic Times reported that the Commerce and Industry Ministry was opposed to automatic route FDI in LLPs on security grounds, as the DIPP was discussing the issue with the finance and corporate affairs ministries.

Two law firms have already converted to LLP and at least eight have registered their LLP trading names or are discussing the conversion internally, Legally India reported in August.

Non-Indian citizens are currently not permitted to practise law in India or be partners in Indian law firms.

Download the discussion paper on FDI in LLPs.

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