Can LLPs do financing activity? If an LLP wishes to run non-banking financial activity, then it is required to obtain prior approval from the Reserve Bank before starting the business.
The answer is that an LLP cannot operate a banking business during its whole tenure because to run a banking company, there must be a company registered under the Companies Act.
For other financial activities, prior approval from the RBI is required, and if an LLP wants to run a non-banking financial activity, then it must obtain prior approval from the RBI before starting the business.
Banking Business
LLPs can't do banking business because only companies registered under the Companies Act can operate banks.
Non-Banking Financial Activities
If an LLP wants to do non-banking financial activities, it must get approval from the RBI beforehand.
For non-banking activities, some key points are:
- The RBI Act, 1934, defines a "financial institution" as including non-banking financial companies.
- A "non-banking financial institution" can be a company, corporation, or cooperative society.
- A "non-banking financial company" can be:
- A company that primarily takes deposits or lends money.
- Other types of institutions are approved by the RBI and the Central Government.
In short, the RBI approves non-banking financial activities for companies registered under the Companies Act, once they meet certain conditions. Therefore, an LLP cannot become a non-banking financial company for investment or financing activities.
CAclubindia
