Financial Daily from THE HINDU group of publications
Thursday, Dec 15, 2005
Financial Daily from THE HINDU group of publications Thursday, Dec 15, 2005 |
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Industry & Economy
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Foreign Direct Investment Government - Financial Policy FDI only in limited cos; doors closed for partnership firms Ambarish Mukherjee
New Delhi , Dec. 14 THE door for foreign equity in partnership firms is getting formally closed. Foreign direct investment will be allowed only in limited companies. The Government is against allowing FDI in partnership and proprietary companies. As a matter of policy, even for downstream investment of FDI, the Government would encourage investments through the structure of limited companies only, officials said. The Department of Economic Affairs (DEA) has recently communicated the Government stand to the Foreign Investment Promotion Board (FIPB) that would now make it a standard condition, the sources said. Limited companies put limited liabilities on their shareholders, while partnership firms put unlimited liability on the partners. Also, limited companies have to make more disclosures to the Registrar of Companies (RoC) as compared to partnership firms. However, according to the existing provisions for FDI, there is no specific mention of allowing or not allowing FDI in partnership firms. The issue has come to light following an application filed by the Netherlands-based Dimexon International Holding BV with the FIPB. The company had sought permission for setting up a wholly owned subsidiary (WoS) with FDI amounting to about $10-13 million to act as a holding company for setting up or acquiring a stake in local companies and investing in partnership firms that would be engaged in sectors falling under the automatic route. Reacting to the company's proposal, the DEA has instructed the FIPB that "investment by the proposed holding company in partnership companies may not be permitted." To further clarify on the issue the DEA has stated, "Under FDI, we may encourage investment in limited companies only." The Department of Industrial Policy and Promotion (DIPP) has also advised the FIPB not to allow FDI in partnership firms. Following similar proposals from both the Ministries of finance and industries, the FIPB is treating it as one of the standard conditions and has also put in a restrictive clause while permitting Dimexon to go ahead with its investment plans.
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