In a move aimed at facilitating cross-border collaboration and investment in unincorporated businesses, the Reserve Bank of India (RBI) has issued updated guidelines allowing foreign nationals and entities to become partners in Indian partnership firms and Limited Liability Partnerships (LLPs), subject to compliance under the Foreign Exchange Management Act (FEMA), 1999.

The circular, released by the RBI in consultation with the Ministry of Finance, outlines specific provisions that ease restrictions on foreign investment in partnership structures. Foreign partners can now be admitted into Indian firms provided the investment complies with the Foreign Direct Investment (FDI) policy, is not in a prohibited sector, and follows the automatic or approval route as applicable.

Under the revised norms, such investments must be reported through the FIRMS (Foreign Investment Reporting and Management System) within 30 days of issue or transfer of capital contribution. In addition, the Know Your Customer (KYC) norms and proper valuation of capital contribution in accordance with international pricing guidelines are mandatory for regulatory acceptance.

The RBI clarified that the relaxation is aimed at encouraging foreign participation in professional and knowledge-based sectors such as consultancy, legal services (where allowed), architecture, and IT services, where partnerships are a common form of business organization.

Experts say the move enhances India’s attractiveness for global investors seeking collaborative ventures without forming a private limited company. However, compliance with FEMA regulations, including repatriation rules, taxation, and profit distribution, remains critical.

The decision is being seen as part of a broader strategy to make India’s business environment more globally aligned and investor-friendly, especially in sectors that support the government’s Make in India and Startup India initiatives.