FDI as capital contribution in Indian LLP

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A new Indian LLP received foreign direct investment (FDI) as capital contribution from its foreign partner. The query concerns the requirement for a valuation certificate from a CA/CS under FDI norms for a newly incorporated LLP with a small initial capital. The discussion explores that for a new LLP, the valuation primarily relates to the capital contribution itself, and the book value method, reflecting the initial capital, is considered the most applicable approach.

yogendra

yogendra (Querist)

11 May 2022 One of my client incorporated LLP having two partners with 50% share each. Now the foreigner remitted their share for capital contribution. but as per FDI norms a certificate must be produced from a CA/CS for valuation. My concern is, the LLP is newly incorporated having capital in total of Rs. 10000, are we have to produce the valuation report and if yes then what will be the methodology for the valuation. Looking for your prompt reply.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)

11 May 2022 As it's newly formed LLP the valuation is only capital contribution.
See the link for details.

https://taxguru.in/company-law/valuation-companies-income-tax-fema-act.html#:~:text=Under%20FEMA%20%26%20its%20Regulations.&text=The%20valuation%20shall%20be%20duly,recognized%20stock%20exchange%20in%20India.

yogendra

yogendra (Querist)

11 May 2022 Thanks for the reply.
I already went through this article. My concern is how valuation to be done for newly incorporated LLP.
Is this sufficient if we issue certificate by mentioning about total capital and the share of foreign partner i.e. total capital 10000 and share of foreign partner is 5000. We can't come out a valuation to Rs. 10000 as this is a capital to form the entity and if possible on which valuation rule basis we should go for.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)

11 May 2022 Methods of Valuation
Market Capitalization. Market capitalization is the simplest method of business valuation. ...
Times Revenue Method. ...
Earnings Multiplier. ...
Discounted Cash Flow (DCF) Method. ...
Book Value. ...
Liquidation Value.

From the above only book value is applicable here as no activity started.
The book value is only capital contribution.

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