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Saturday, June 1, 2013

RBI disclaims regulation of non banking financial sector(NBFC) LLPs

 In an earlier blog post in Jan-13, I'd written http://financeandcapitalmarkets.blogspot.in/2013/01/warren-buffets-investment-partnerships.html that RBI regulations apply to NBFCs(non banking financial COMPANIES) and not to firms, why should the LLP be subject to this? Section 14 of the LLP Act 2008 states that On registration, a limited liability partnership shall, by its name, be capable of.....(d)  doing and suffering such other acts and things as bodies corporate may lawfully do and suffer. Section 2(d) of the LLP Act2008 defines body corporate.... “body corporate” means a company as defined in section 3 of the Companies Act, 1956 (1 of 1956) and includes..Therefore, since LLP is a body corporate under the Act and subject to other acts applicable to body corporates, the RBI NBFC norms will apply to it to the same extent that they would apply to companies. 

However, in its circular yesterday, the RBI expressed the view that
rbi.org.in/scripts/FAQView.aspx?Id=92  LLPs are regulated by the Ministry of Corporate Affairs and not by it. Is this a case of regulatory arbitrage, given that LLPs are explicitly an alternate to private sector companies? And more importantly, will the Registrar of Companies dispense with RBI approval for LLPs on the basis of this circular? only time will tell.


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