Tutorial-2 Limitations/Disadvantages of Limited Liability partnership (LLP)

4. Offences and penalties

There is provision in LLp Act provides Provision regarding

Offences and penalties. For non compliance of procedural matters for instance, delay in filing e-forms then one has to pay default fee(penalty) for every day until the default continues.

Such default fee would be payable at the rate of rupee one hundred per day after the expiry of the date of filing (as prescribed in relevant provision) up to a period of three hundred days. The offense can result in either

(i) through payment of fine or

(ii) through payment of fine as well as imprisonment of the offender.

5. Limitation in External Commercial Borrowing (ECB)

LLP are not allowed to raise money through “External Commercial Borrowing”(ECB). Thus restricting a LLP to take loans from its foreign partners, Foreign investors, Foreign banks, from any financial institutions outside India or any entity outside india.

6. Permission of Foreign Direct Investment (FDI) in LLP

As  per FDI policy FDI through automatic route in LLP is not permissible. Thus FDI in LLP is allowed only through government route or Approval route. In case you don’t know about these routes then, In approval route the  government agencies regulate and scrutinises foreign investment while approving it.

While in other hand Automatic Route  the foreign investor or the Indian company does not require any approval from the Reserve Bank or Government of India for the investment.

Foreign company or individual can invest in LLP in India but it requires prior government approval. Further FDI in LLP through Government route is allowed to only those sectors where 100% FDI is allowed under automatic route under the FDI policy.