Can an LLP be formed for NBFC Business

[Prakash M]

Dear Members,

 

Can any one tell me whether an LLP be formed to do NBFC business  under LLP Act. If so whether RBI Permission is required. As there is No clear provision in the LLP act to regulate NBFC or Nidhi Companies or Business does it mean that we can form an LLP for doing NBFC business. 

 

from my point of View RBI doesnot allow to do NBFC Business under LLP as the Definition of NBFC itself says  - A Non-Banking Financial Company (NBFC) is a  company registered under the Companies Act, 1956 and is engaged in the business of loans and advances, acquisition of shares/stock/bonds/debentures/securities issued by Government or local authority or other securities of like marketable nature, leasing, hire-purchase, insurance business, chit business but does not include any institution whose principal business is that of agriculture activity, industrial activity, sale/purchase/construction of immovable property.

 

And even the recent news on this says that

 

RBI will put strict rules and regulations for conversion of NBFC into LLP

 

Mar 10, 2010 RBI

The Reserve Bank of India (RBI) plans to amend its rules to pre-empt non banking finance companies (NBFCs) from misusing the liberal rules governing limited liability partnership (LLP) firms. In the interim, NBFCs that want to convert themselves to LLP firms will have to obtain a no-objection certificate from the central bank.

 

From the above its clear that an LLP cannot be formed for doing NBFC Business.

 

IS there any other view or provision regarding this.

 

Please clarify whether what ever conclusion i have made above is correct or not. 

[Jayashree Chandrasekaran]

I dont think you will be able to register a LLP for NBFC business since they are still not clear...however you can call the LLP office at Delhi and talk to them they are very friendly

Jayashree

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[Prakash M]

Dear all,

 

In continuation of the below query, i wanted to know if a person provides Autorikshaw vehicle Loan  to individuals and  if he wanted to expand this business then is it better to go for a New company or LLP is suitable.

 

Will this be a NBFC business as he is lending for auto finance. if yes is it required RBI Registration.

 

Is there any way out with out registering with RBI.

 

Can any one provide the Procedure for the same and is t required to make minimum capital of 2 Crore.

 

Here he is not accepting any deposits . only giving loans to the people for interest.

[Shrisha M]

Dear Prakash..

Regarding formation of LLP there is no such a restriction on for NBFC
Business..

But one point i wouldlike to highlite that normally acceptance of
deposists from public is strictly prohibited under LLP Act itself..

Please suggst me if i was wrong..

On Apr 6, 11:32 am, Prakash M <tmacomp...@gmail.com> wrote:
> Dear Members,
>
> Can any one tell me whether an LLP be formed to do NBFC business  under LLP
> Act. If so whether RBI Permission is required. As there is No clear
> provision in the LLP act to regulate NBFC or Nidhi Companies or Business
> does it mean that we can form an LLP for doing NBFC business.
>
> from my point of View RBI doesnot allow to do NBFC Business under LLP as the
> Definition of NBFC itself says  - A Non-Banking Financial Company (NBFC) is
> a  company registered under the Companies Act, 1956 and is engaged in the
> business of loans and advances, acquisition of
> shares/stock/bonds/debentures/securities issued by Government or local
> authority or other securities of like marketable nature, leasing,
> hire-purchase, insurance business, chit business but does not include any
> institution whose principal business is that of agriculture activity,
> industrial activity, sale/purchase/construction of immovable property.
>
> And even the recent news on this says that
>
> RBI will put strict rules and regulations for conversion of NBFC into

> LLP<http://www.taxguru.in/rbi/rbi-will-put-strict-rules-and-regulations-f...>
>
> Mar 10, 2010 RBI <http://www.taxguru.in/category/rbi>

[pavithra madhwesh]

Dear Member

 

The LLP Act does not restirct the business which the LLP should carry on

 

consequently, the LLP can carry on the business of NBFC

 

However, before filing incorporation document in Form 2 you shall obtain the RBI permission.

 

Plese enquiry with the RBI personally and also with the LLP division on the enquiry number provided in the LLP site and then go ahead with incorporating

 

Regards

Pavithra

9535574123

 

On Tue, Apr 6, 2010 at 12:02 PM, Prakash M <tmaco...@gmail.com> wrote:

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Regards
Pavithra
9535574123

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From: csmy...@googlegroups.com
To: csmy...@googlegroups.com
Sent: Sun Apr 11 13:09:27 2010
Subject: Re: [CSMysore] Can an LLP be formed for NBFC Business

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From: csmy...@googlegroups.com
To: csmy...@googlegroups.com
Sent: Sun Apr 11 13:07:25 2010

[pavithra madhwesh]

Dear Member

 

The LLP Act does not restirct the business which the LLP should carry on

 

consequently, the LLP can carry on the business of NBFC

 

However, before filing incorporation document in Form 2 you shall obtain the RBI permission.

 

Plese enquiry with the RBI personally and also with the LLP division on the enquiry number provided in the LLP site and then go ahead with incorporating

 

Regards

Pavithra

9535574123

 

On Tue, Apr 6, 2010 at 12:02 PM, Prakash M <tmaco...@gmail.com> wrote:

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Regards
Pavithra
9535574123

[ARV]

Dear Prakash,

 

In reply to your queries, I opine the below:

 

1. An LLP cannot be formed to carry on the business of NBFC. Reason being defined in Section 45-I(f) of Reserve Bank of India Act, 1934:

 

“non-banking financial company” means –

(i)                   a financial institution which is a company;

(ii)                 a non-banking institution which is a company and which has as its principal business the receiving of deposits, under any scheme or arrangement or in any other manner, or leading in any manner;

(iii)                such other non-banking institution or class of such institutions, as the Bank may, with the previous approval of the Central Government and by notification in the Official Gazette, specify.

Therefore you have to approach RBI office of your region or write mail to RBI for prior approval.

 

2. "if a person provides Autorikshaw vehicle Loan  to individuals and  if he wanted to expand this business then is it better to go for a New company or LLP is suitable.  Will this be a NBFC business as he is lending for auto finance. if yes is it required RBI Registration."

NEED FOR REGISTRATION

 

Ø       Section 45-IA of the Reserve Bank of India Act, 1934 provides that No non-banking financial company shall commence or carry on business of a non-banking financial institution without –

(a)                 obtaining a certificate of registration issued under Chapter IIIB; and

(b)                 having the net owned fund of twenty-five lakh rupees or such other amount, not exceeding two hundred lakh rupees, as the Bank may, by notification in the Official Gazette, specify.

 

 

Ø       Reserve Bank of India vide its PRESS RELEASE dated 8^th April 1999 has announced that “in order to identify a particular company as a non-baking financial company (NBFC), it will consider both, the assets and the income pattern as evidenced from the last audited balance sheet of the company to decide its principal business. The company will be treated as an NBFC if its financial assets are more than 50 per cent of its total assets (netted off by intangible assets) and income from financial assets should be more than 50 per cent of the gross income. Both these tests are required to be satisfied as the determinant factor for principal business of a company.”

 

 

 

Ø     Reserve Bank of India vide its Notification No. DNBS 132 / CGM (VSNM) – 99, dated 20/04/1999 has increased the requirement of “net owned fund” from Rs.25 lakh to Rs.200 Lakh for the NBFC which commences business of a non-banking financial institution on or after April 21, 1999.

 

 

Based upon the conditions highlighted in first bullet point, you need to get NBFC license, else upon subsequent discovery of facts, you would be required to get it registered with RBI.

 

Members view solicited.

 

Regards,

Arvind