A Limited Liability Partnership (LLP) is a registered business entity under the Ministry of Corporate Affairs (MCA), functioning as a body corporate and engaging in lawful business activities in India.
The LLP can undertake various operations such as trading, manufacturing, providing services, professional services, etc., but certain activities require prior approval from relevant authorities. These activities include finance, investment, insurance, stock exchange operations, architecture, banking, merchant banking, Non-Banking Financial Company (NBFC), Chit fund operations, etc.
During registration, the LLP must select an industrial code according to NIC-2004, aligning with its business activities. Once chosen and furnished to the Registrar of Companies (ROC), the LLP cannot engage in other activities without amending the LLP agreement and obtaining ROC approval.
Regarding financial activities like banking or NBFC operations, an LLP cannot operate a banking business throughout its tenure as banking companies must be registered under the Companies Act. For other financial activities, prior approval from the Reserve Bank of India (RBI) is necessary.
If the LLP intends to engage in Non-Banking Financial Activities, it must obtain prior approval from the RBI before commencing operations.
As per section 45 I (a) of the RBI Act, 1934, the “business of the financial institution” includes non-banking financial company operations.
Section 45-I (e) defines a non-banking financial institution as a company, corporation, or cooperative society.
Furthermore, Section 45-I (F) outlines the definition of a non-banking financial company, including entities primarily involved in deposit-taking or lending activities, as specified by the RBI with prior approval from the Central Government.
RBI Approval for Non-Banking Financial Activities for LLPs
Companies registered under the Companies Act seeking to engage in non-banking financial activities must adhere to specific criteria:
- The company must comply with Section 2(20) of the Companies Act, 2013, or previous company laws.
- Minimum net owned funds should be Rs.200 Lakh (2 Crores).
Nidhi Companies can conduct non-banking financial activities within their membership, per Nidhi Rules, 2014, without RBI approval.
Conclusion
In summary, RBI approval is required for non-banking financial activities for Companies Act-registered companies, meaning LLPs cannot registers NBFCs for investment or financing.
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