Opening a Limited Liability Partnership (LLP) in India: A Guide for US Entrepreneurs from New York, Texas and California | Guide to incorporating LLP in India by American Citizens & US Investors

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Introduction: to Setting Up a Limited Liability Partnership by American Citizens
In recent times, India has become a destination for foreign investors and entrepreneurs. Foreign direct investments have been rising every year, and more and more investors are entering the Indian Market. Also, many entrepreneurs and businessmen are choosing India as their base to expand their business/brand/company throughout the globe. However, foreign entrepreneurs have been facing a certain dilemma in choosing the best structure for their business, many businessmen struggle to pick between a private limited company and a public limited company. The most common and basic conditions of any businessman are limited liability and less compliance. The introduction of a Limited Liability Partnership has put an end to all the debates relating to the best business structure, as it offers limited liability and fewer compliance benefits.

Limited Liability Partnership:
A Limited Liability Partnership is an entity incorporated under the Limited Liability Partnership Act 2008. An LLP is a combination of a partnership and a company. LLP requires a minimum of 2 members as partners, and there shall be at least 2 partners acting as the designated partners. An LLP must be registered under the LLP Act and shall follow the rules and regulations framed there under. An LLP enjoys limited liability, has fewer compliances, and enjoys tax benefits. An LLP can be converted into a company at any time by following the procedures laid down under the Companies Act 2013.

Advantages:
The following are some of the major advantages of an LLP:
1. An LLP, as the name suggests, enjoys Limited Liability. The personal assets of the partners cannot be attached to clear the debts of the LLP.
2. As an LLP is a combination of a partnership and a company, it enjoys the perpetual succession feature of a company. However, an LLP doesn’t dissolve automatically with the death or ineligibility of one or all of the partners.
3. The partners can make all business decisions, and operations always flow smoothly.
4. Earnings or profits received by an LLP are not subject to Dividend distribution tax. Therefore, profits distributed among the partners cannot be taxed as dividends.
5. There are no minimum capital requirements to incorporate an LLP.
6. An LLP does not have as many annual compliances as a company. The audit report is mandatory only when you cross the threshold limits.

Benefits of LLP setup for American Citizens in India:
Foreign entrepreneurs who wish to open an LLP can enjoy various benefits, such as:
1. Skilled workforce:
India is the second-most populated country in the world. It has many skilled labor and software professionals. In India, you can employ the best workforce at a relatively cheaper price. You can find skilled professionals and experts for every sector and business.

2. Market base:
The Indian market is huge and ever-growing. Raising funds and finding a great customer and client base will be easy in this market. US entrepreneurs will not have to struggle or worry about finding a customer base or raising capital from the public.

3. Government support:
The Indian Government has been encouraging young entrepreneurs to incorporate companies/startups/LLPs and promoting the idea of inviting foreign entrepreneurs to start their businesses in India. The government periodically announces different schemes to encourage foreign investors to enter the Indian Market. There are various tax schemes and grants for foreign entrepreneurs who wish to incorporate an LLP in India. Benefits such as special economic and industrial zones with excellent infrastructure can be the best option for any foreign entrepreneur entering the Indian market. The government has also introduced simplified online procedures to set up businesses and incorporate LLPs.

4. Diverse options:
With diverse options among various sectors, US entrepreneurs can pick the sector that best suits their business and join hands with other entrepreneurs in that industry/sector. There are various sectors in the Indian Market, such as Technology, healthcare, agriculture, real estate, manufacturing, production, import and export, etc.

Why choose an LLP over a Company: A step by step Strategy for American Citizens & US Nationals
There are various advantages that an LLP enjoys as compared to a Company. The following are some of those benefits:
1. One major advantage of an LLP over a company is that it has fewer compliances. The annual statutory filings are also simpler than those of a company. Also, the statutory annual audit, as in the case of a company, does not apply here. Audit becomes mandatory only when the threshold limit is crossed.
2. As mentioned above, the earnings from an LLP do not fall under the Dividends Distribution Tax.
3. LLPs enjoy much more flexibility in management and control than companies. A company is managed and controlled by the directors, management professionals, shareholders, etc. In contrast, the decisions in an LLP are made by the partners. The entire management and control are in the hands of these partners.

Incorporation of an LLP:
The incorporation procedure of an LLP is similar to that of a company. The LLP agreement is the key document of an LLP, and it is not possible to incorporate an LLP into the agreement. It is important to finalize the two partners who would be the designated partners of an LLP. The designated partners shall have their Identification numbers and e-signature certificates. RUN-LLP is the form that shall be filed to reserve the name of the LLP. To apply for the incorporation of the LLP, Form FiLLiP must be submitted. All the necessary documents, along with the applicable fee, must be submitted to complete the incorporation process.

Can American Citizens & US Nationals incorporate an LLP:
Yes, a foreign individual can incorporate an LLP. However, there are a few compliances that are to be completed before incorporating an LLP and also statutory compliances that are to be adhered to at all times:
1. The LLP shall have at least one Indian resident as a partner.
2. It is obvious that when a foreign entrepreneur incorporates an LLP, there will be an inflow and an outflow of foreign currency. Therefore, the LLp shall comply with the rules and regulations of the Foreign Exchange Management Act (FEMA).
3. The LLP shall report all foreign transactions to the Reserve Bank of India and shall submit necessary documents and annual financial statements.
4. The LLP shall acquire the prior approval of the government to bring in foreign currency investments, if applicable.

Can a foreign individual become a designated partner?
Yes, a foreign individual can become a designated partner in an LLP. Such a person must obtain an identification and e-signature certificate before applying. The statutory authorities may also require additional documentation.

Conclusion:
It is clear that incorporating an LLP is very beneficial. With an LLP, you can focus more on the business rather than the compliances. For US entrepreneurs from California, Texas, New York, and New Jersey, an LLP is the best option as it can give them control over the management of their affairs and help them make better decisions for the expansion of their business. Simplified taxes and no restrictions on foreign investment can help the business grow in no time. Even small businessmen from the US can enter the Indian market by incorporating an LLP. It is undoubtedly the best way to enjoy the rewards and benefits of an Indian market with the least risk.

FAQs on Setting up Limited Liability Partnership Firms by American Citizens in India:
1. Can a foreign individual incorporate an LLP in India, and what are its benefits?
Ans: Yes, a foreign entrepreneur/individual can incorporate an LLP in India by complying with the applicable rules and regulations. One of the most important rules is to have at least one Indian resident as a partner. Some of the benefits of incorporating an LLP in India include access to the huge Indian market, rendering services of skilled professionals at reasonable price, and enjoying benefits assured under different government schemes and policies.

2. What are the advantages of a Limited Liability Partnership?
Ans: Limited liability, perpetual succession, fewer statutory compliances, tax-related benefits, and the ability to be converted into a company at any time are some of the major advantages of incorporating an LLP.

3. How is an LLP better than a company?
Ans: An LLP has fewer compliances than a company. By incorporating an LLP, the foreign entrepreneur can focus more on expanding the business rather than worrying about statutory compliances.

4. Can a foreign individual become a designated partner in an LLP?
Ans: Yes, a foreign individual can become a designated partner in an LLP, provided that he/she has fulfilled the necessary requirements, which are obtaining the identification number and e-signature certificate issued by the government department.

5. Can a foreign company become a designated partner in an LLP?
Ans: Yes, a foreign company can become a designated partner in an LLP after complying with all the applicable provisions under the Limited Liability Partnership Act 2008.

6. What are the specific rules applicable to a foreign entrepreneur who wants to incorporate an LLP in India?
Ans: The specific rules ensure that foreign currency and transactions are reported to the Reserve Bank of India and that proper documentation for all such transactions is maintained. Also, the LLP shall comply with the provisions of the Foreign Exchange Management Act (FEMA).
Authored by: Adv. Anant Sharma & Inayat Ahmed

 

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