One of the first strategic decisions that an entrepreneur will make is the choice of a business structure. The Limited Liability Partnership (LLP) is currently the most commonly chosen structure for startups, consultants, professionals, SME owners and Global Businesses entering India. The question that usually arises is, "Is there a difference in the registration of an LLP regardless of whether it is formed by either all-resident or non-resident and/or Foreign partners?" At first glance, one may conclude that, based upon the idea of the team as being an identical entity regardless of who the partner is, the registration and treatment of an LLP will be the same for each type of partner. However, when any of the partners are deemed to be a non-resident or foreign entity, the regulatory treatment, compliance, taxation, and certain procedural rules for Compliance are very different compared to those who are all-resident partners. This guide will identify and explain the various differences between the registration and treatment of an LLP depending upon the nature of the partners.
Understanding LLPs: A Quick Overview
An LLP provides you the option of having a limited liability company and having the flexibility of a Partnership. An LLP is governed under the Limited Liability Partnership Act and became popular due to the following benefits:
• Cost of compliance is lower than that of a Company
• Limited Liability company has its own separate legal Identity
• Flexibility in how Profit Sharing occurs and how it is managed
• There is no minimum requirement for Capital
• Limited Liability Protection of all partners
The core structure will be the same for a Domestic or Foreign LLP however, registration and compliance procedures will differ.
LLP Registration Process: All-Resident vs. LLP With NRI/Foreign Partners
The procedure for registering an LLP in India remains the same regardless of whether one or more partners have a physical presence in the country. In cases where one (NRI) or more of the partners are legally located outside India, there will be additional documentation and verification requirements added to those stated above.
A. Formation of an LLP with only Indian citizens as Partners, the simplest method to create an LLP.
For an LLP to be formed by all Indian citizens, the information required for completion includes:
• PAN and Aadhaar
• Address verification (bank statement, voter ID, driver’s license)
• Digital Signature Certificate (DSC)
• Director Identification Number (DIN/DPIN); Registered office address proof.
The entire registration process for all LLPs is generally accomplished within 5–10 business days via the Ministry of Corporate Affairs (MCA) portal, using forms such as:
• RUN-LLP (Reserve Name);
• FiLLiP (Incorporation Application); and
• Filing of LLP Agreement (Form 3).
LLP registration service providers handle LLP registration with relative ease with fewer documentation requirements than some other entities.
B. LLP Formed by Resident Partner + NRI/Foreign Partner or Foreign Company
If you choose to register your LLP with a non-resident or non-local partner, additional steps must be followed. This includes:
Passport (required from the non-resident or foreign partner). The passport must be either:
Legal & Regulatory Treatment Under FEMA
LLPs with foreign investment fall under the Foreign Exchange Management Act (FEMA), 1999.
A. All-Resident LLP
B. LLP With NRI/Foreign Partner
Mandatory Filings
This creates a clear difference between the two types of LLPs in terms of foreign investment monitoring and reporting.
Taxation Differences: Domestic vs. NRI/Foreign Partner LLP
The Income Tax Act requires that all LLPs be taxed under the partnership provisions so that an LLP with all-resident partners would be taxed under these provisions. The following provisions are for an LLP that has all-resident Indian partners:
A. Tax Treatment of all-resident Indian partners LLP
• LLP is taxed at 30% on income;
• Surcharge is at 12% if the income is greater than ₹1 crore;
• Health and Education Cess are charged at 4%.
• There is no dividend distribution tax.
• The profit share given to the partners is not subject to taxation. B. Tax Treatment of LLP with NRI or Foreign Partners
The LLP tax rate remains the same as an LLP that only has resident Indian partners; however, taxation of profit distributions (or withdrawals) and interest payments are subject to different taxation.
Payments to Foreign/NRI Partners May Attract:
1.Section 195 of the Income Tax Act requires the deducting of withholding tax (TDS) for foreign partners on any interest, fees, or other payments made to foreign partners.
2. Deduction of withholding tax may be reduced by a double taxation avoidance agreement (DTAA) if one exists between the partner's home country and India.
3. Profit repatriation is possible but must comply with the Foreign Exchange Management Act (FEMA).
Profit-sharing Taxes
• Profit shares of all-resident Indian partners are exempt from taxation.
• Profit shares of NRI or foreign partners may also be exempt from tax, however, certain
FEMA documentation will be required for transfer to foreign partners.
Operations & Compliance Differences
A. Resident Partners in LLPs
An LLP that has resident partners (e.g. in India) will not be subject to any additional operational restrictions aside from the normal requirements of annual compliance:
Form 8 (Statement of Accounts/Solvency)
Form 11 (Annual Returns)
Income Tax Return
B. NRI/Foreign Partners in LLPs
An LLP that has NRI/foreign partners will be subject to an additional level of compliance, which includes:
1.FDI Compliance Reporting
FDI compliance reporting must be adhered to in accordance with FEMA regulations if capital contributions have been made from abroad.
2. Maintenance of Additional Documentation
3. Auditor Appointment
Traceable auditable accounts will be required and an auditor must be appointed (where applicable) if any of the foreign partners request an audit-based report and/or the LLP exceeds specified thresholds in turnover or capital.
4. Business Restrictions
Restrictions on the operation of LLPs with foreign investments must be in place for sectors that are considered prohibited by the RBI (Central bank) under the FDI policy. Examples include:
This is what differentiates the operational experience of an LLP that has foreign partners from that of an LLP that only has resident partners.
Banking and Capital Contribution Differences
Opening a bank account for an LLP with foreign partners usually requires:
Banks have stricter AML (Anti-Money Laundering) checks for foreign partners.
Capital contributions from foreign partners must be:
This step is significantly simpler for resident-only LLPs.
Profit Sharing: Are There Any Differences?
From a structural perspective, profit sharing is identical for both LLP types. Partners can decide any ratio they prefer—there is no legal restriction.
However, the difference lies in:
Profit sharing for resident partners is straightforward.
Profit sharing for NRI/foreign partners requires cross-border compliance.
Should Startups Choose an LLP With a Foreign Partner?
For sure, India has opened itself up to FDI invested in LLPs; however, there are things founders need to keep in mind:
Advantage
• Worldwide brand strength
• Access to funding sources around the world
• Use of professional services from overseas
• LLP structures can scale internationally
Challenge
• More regulations are needed
• Registration takes a while
• There is more paperwork required for taxes
• Certain industries have limitations on the degree to which they can collaborate with foreign investors
Overall, most industries find that establishing an LLP with foreign participation becomes much easier with the use of a reputable and trustworthy LLP registration provider in India.
Final Comparison Table
Parameter
LLP with All Resident Partners
LLP with NRI/Foreign Partner/Foreign Company
Registration documentation
Basic KYC
Apostilled/Notarized passport & foreign KYC
FEMA applicability
Not applicable
Fully applicable
FDI reporting
Not required
Mandatory (LLP(I), LLP(II))
Profit repatriation
Simple
FEMA-compliant remittance required
Taxation
No TDS for partner payouts
TDS + DTAA documentation
Approval route
Automatic FDI route (sector-specific)
Banking KYC
Basic
Enhanced due diligence
Compliance cost
Low
Moderate to high
Impact on Business Functioning
Impact of a Resident-Only LLP on Business
• Faster Registration
• Minimal Regulatory Oversight
• Easier Banking and Compliance with Taxes
• Good For Domestic Startups
Impact of a Foreign-Partner LLP on Business
• Provide Global Credibility
• Access to Foreign Capital
• Facilitate Entry into International Markets
• Increase Compliance and Cost
• Require Long-Term Documentation Management
A Foreign-Partner LLP Despite the Higher Compliance Burden Supports the Better Positioning of The Business in The International Marketplace by Offering Better International Credibility Than a Resident Only LLP.
Compliance Differences After Registration
An LLP Must Comply with All Core Compliance Requirements. However, Each Type of LLP Is Subject to Its Own Set of Compliance Requirements:
A. Annual Filings Requirements for All Types of LLPs (Same)
• Annual Return Form 11
• Statement of Accounts and Solvency Form 8
• Income Tax Return
B. Additional Filing Requirements for LLPs Having Foreign Contributions
The Foreign Direct Investment (FDI) Reporting to Reserve Bank of India.
Form FC-GPR When the Capital Contribution of Foreign Entity Is Structured as an Investment.
Reporting For Received Capital from Resident to NRI/Foreign Entity Transfers.
C. Other Compliance Areas
• Regulations Under the Foreign Currency (FEMA) Act
• Potential Tax Treaties Benefits (DTAA) With Foreign Partners
• PAN Requirement for Foreign Partners.
Cost Differences Between Both Types of LLPs
Higher costs usually result from the following factors when establishing an LLP involving foreign individuals or entities:
• Notarization costs
• Apostille Charge
• International shipping/courier costs
• Professional costs (higher)-FEMA/RBI compliance
• Required KYC of the foreign member LLPs that do not include any overseas participants are generally cheaper and quicker to establish.
Which Option Is Better for Startups?
Both structures are valuable, depending on your business model.
Choose a Resident-Only LLP If:
Choose an LLP with NRI/Foreign Partner If:
For all types of formations, it's best to use a professional LLP registration service to ensure RBI, MCA, and FEMA compliance.
Conclusion
There is a similarity in fundamental structure, liability protection, and flexibility of profit distribution between an LLP that is entirely resident partners and one that has an NRI/Partner, and the only difference is that you would have to follow more compliance regulations for a foreign participation than for a resident LLP in the areas of FEMA, FDI Policy, Taxation, Banking Regulation, and Documentation Authentication requirements. Therefore, whereas an all-resident LLP's registration process is straightforward, an LLP with foreign participation requires due care in terms of documentation and compliance reporting as well as the need for a professional to manage the process. Whether you are establishing a domestic LLP or an LLP with a global presence, professional assistance in your Limited Liability Partnership Firm Registration and LLP Registration Service in India will provide you with a smooth incorporation experience and be able to assist you with ongoing compliance management.
FAQs
1. Can an NRI be a partner in an LLP in India?
Yes, NRIs can become partners in an LLP. They must provide notarized/apostilled documents and comply with FEMA guidelines.
2. Does an LLP with an NRI partner need RBI approval?
Most sectors fall under the FDI automatic route, so no prior approval is needed. But FDI reporting is mandatory.
3. Are taxes higher for LLPs with foreign partners?
The LLP’s tax rate is the same. However, payments to foreign partners may require TDS under Section 195.
4. Can a foreign company become a partner in an LLP?
Yes, foreign companies can become partners by designating an authorized representative and submitting apostilled company documents.
5. Is profit sharing different for foreign partners?
The ratio is the same, but repatriation of profits requires FEMA compliance and banking documentation.
Your email address will not be published. Required fields are marked *