The Reserve Bank of India (RBI) has issued a formal clarification on the regulations governing foreign direct investment (FDI) in Limited Liability Partnerships (LLPs), addressing longstanding ambiguities faced by stakeholders. In its updated circular released in May 2025, the central bank reaffirmed that 100% FDI is permitted in LLPs through the automatic route, provided the LLP operates in sectors where 100% FDI is allowed without conditions and does not involve foreign investment-linked performance requirements. This clarification reinforces the government’s intention to encourage structured and transparent foreign investment in the LLP model.

According to the RBI, conversion between companies and LLPs is permitted under the automatic route as long as the involved entities are compliant with the FDI policy and sectoral guidelines. However, the RBI emphasized that LLPs cannot receive FDI under sectors that require prior government approval or impose sector-specific conditions, such as defense, real estate, and multi-brand retail. Additionally, foreign investors must ensure that capital contributions are routed through banking channels and reported to the RBI via Form LLP(I) and Form LLP(II), which have now been digitized and integrated with the RBI’s FIRMS portal.

The RBI has also clarified that LLPs with foreign investment are not permitted to issue convertible debentures or equity-linked instruments, which are allowed in company structures. Furthermore, profits repatriation, partner withdrawals, and exit processes must adhere to the FEMA (Non-Debt Instruments) Rules, 2019. This clarification is seen as a major compliance and policy update that provides both certainty and confidence to foreign investors, especially venture capital and private equity players. Legal experts have welcomed the move, stating it will streamline cross-border transactions and enhance the credibility of LLPs in global investment circles.