Can an LLP carry on investment activities in India?

An LLP cannot carry on investment business as its principal commercial activity, as it cannot register as an NBFC under RBI regulations. However, an LLP can invest its own surplus funds in listed securities and mutual funds, provided it does not accept deposits from third parties and does not lend money.

Why can't an LLP register as an NBFC?

The RBI Act, 1934, defines 'non-banking financial company' as a financial institution that is a 'company,' and defines 'company' under section 45-I(aa) as a company under the Companies Act. An LLP is formed under the LLP Act, 2008, not the Companies Act, and is therefore structurally excluded from the NBFC framework.

What is the 50-50 principal business test for NBFC classification?

The 50-50 test is the RBI's benchmark, introduced via press release dated 08/04/1999, to determine whether a company's principal business is financial. Both conditions must be satisfied simultaneously: financial assets must exceed 50% of total assets (net of intangibles), and income from financial assets must exceed 50% of gross income. Fixed deposits with banks are excluded from this calculation.

Does the 50-50 test apply to LLPs?

The 50-50 test is designed to classify companies for NBFC registration. Since an LLP cannot become an NBFC regardless of its financial profile, the test does not grant an LLP any ability to conduct investment business as a commercial activity.

Can an LLP accept deposits from partners to invest in the stock market?

No. Under section 45-S of the RBI Act, any entity whose business wholly or partly includes investment, loan, hire-purchase, or leasing activity cannot accept deposits except by way of loan from relatives. This restriction applies to all non-company entities including LLPs.

Can an LLP invest in shares of another company or group entity?

Yes, if it is investing its own contributed capital and the activity does not constitute the principal business of the LLP. Passive minority holdings or treasury investments from surplus capital are generally permissible.

How does an LLP convert to a private limited company to pursue investment business?

Conversion is governed by section 366 of the Companies Act, 2013, and the Companies (Authorised to Register) Rules, 2014. The process requires all-partner approval, newspaper publication in Form URC-2 for 21 clear days, NOC from the ROC and secured creditors, and filing of Form URC-1 with SPICe+ and supporting documents. No capital gains tax applies on asset transfer if partners retain at least 50% shareholding for five years post-conversion.

What is the minimum Net Owned Fund for NBFC registration after conversion?

Under section 45-IA of the RBI Act, the statutory ceiling the RBI can prescribe is Rs. 200 lakhs. Through notifications, the RBI has progressively raised the effective threshold. For most standard NBFC categories today, the minimum is Rs. 10 crore. Specialised categories such as NBFC-MFI, NBFC-Factor, and CIC have separately prescribed thresholds.

Can a foreign investor invest in an LLP in India?

Yes, subject to FEMA conditions. Investment can be on repatriation basis in sectors where 100% FDI is permitted under the automatic route with no FDI-linked conditions, or on non-repatriation basis by NRIs or OCIs without limit and without FDI conditions. FVCIs and FPIs cannot invest in LLPs.

What FEMA reporting is required when a foreign investor invests in an LLP?

Form FDI-LLP(I) must be filed within 30 days of receipt of consideration. Form FDI-LLP(II) must be filed within 60 days of disinvestment or transfer of capital contribution or profit share. An Annual Return on Foreign Liabilities and Foreign Assets must be filed by 15th July every year.

Can an LLP raise External Commercial Borrowings?

No. LLPs are not eligible borrowers under the RBI's ECB framework, as confirmed under RBI FAQ 5 on External Commercial Borrowings.

Can an LLP be used as a vehicle for an Alternative Investment Fund?

Yes. SEBI AIF Regulations, 2012 permit an AIF to be constituted as a trust, company, body corporate, or LLP. An LLP registered with SEBI as a Category I, II, or III AIF can pool third-party capital in a compliant manner. This route is regulated by SEBI, not the RBI, and is structurally distinct from NBFC registration.

What is the tax treatment for investment income earned by an LLP?

An LLP is taxed at a flat rate of 30% plus applicable surcharge and cess. Capital gains on listed securities are taxed at 15% (short-term) or 10% (long-term, above Rs. 1 lakh threshold). Dividend income is taxable in the LLP's hands at the applicable rate. Partners are taxed on their profit share at individual rates; the profit share is exempt from further tax in their hands under section 10(2A) of the Income Tax Act, 1961.

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Home > Compliance > Investment Activities By The Limited Liability Partnership

Investment Activities By The Limited Liability Partnership

Written By

Sanmita Poojari

Published on

May 20,
2026

Last updated on

May 20, 2026
16:47

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Investment Activities By The Limited Liability Partnership

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May 20,
2026

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May 20, 2026
16:47

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Need Legal Guidance for LLP Investment Activities.

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Startup

Investor

Going Global

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Investment Activities By The Limited Liability Partnership

Written By

Published on

May 20,2026

Last updated on

May 20, 202616:47

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Need Legal Guidance for LLP Investment Activities.

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May 20,
2026

May 20, 2026
16:47