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Restriction on LLPs for manufacturing activities withdrawn

Restriction on LLPs for manufacturing activities withdrawn

Legal & Compliance

Ravi Kariya

Ravi Kariya

24 Apr 2019, 10:29 — 4 min read

Background: A Limited Liability Partnership (LLP) is a corporate business structure which offers the benefits of a partial responsibility to the partners at low compliance costs. A memorandum was circulated by the Ministry of Corporate Affairs (MCA) last month which restricted all LLPs, from any manufacturing and allied activities. This created distress amongst some quarters of the industry. On 17 April 2019, the Ministry of Corporate Affairs (MCA) revoked the ban. In his previous articles, Ravi Kariya has explained the process to register Proprietorship FirmPrivate Limited Company and a Limited Liability Partnership (LLP) in India. Here he examines how the MCA has revoked the ban on all LLPs who are into manufacturing activities.

In India, the concept of Limited Liability Partnership (LLP) was introduced in 2008 with the introduction of Limited Liability Partnership Act, 2008. Incorporating LLP has a blend of the benefits of a company and a partnership firm namely limited liability feature of a company and the flexibility of a partnership firm. Many new LLPs were incorporated this year with various objectives, one of them being ‘Manufacturing Activity’ at large.

Initially before 8 April 2019 manufacturing and allied activities were restricted in LLPs vide OM No. CRC/LLP/e-Forms dated 6 march 2019. Accordingly if an LLP desires to register with manufacturing and allied activity as its main objective  then the same shall not be allowed on the ground that manufacturing activities do not fall under the definition of `business’ as per the Limited Liability Partnership Act, 2008. Currently there are more than 12,000 active LLPs already into manufacturing sector. This raised a question on the status of existing LLPs with the objective of manufacturing activity.

Definition of Business as per LLP Act, 2008

According to Section 2(1) (e) business includes every trade, profession, service and occupation.

Explanation of OM No. CRC/LLP/e-Forms dated 6 March 2019

In the Vide OM No. CRC/LLP/e-Forms dated 6 March 2019, the MCA clarified that the objective of LLPs is mainly for professional services and not for manufacturing activities.

The strong move by MCA

When it came to the notice of Institute of Company Secretaries of India (ICSI) it has objected to the restriction and finally made up a representation on 8 April 2019. The ICSI said, “it has been noticed that in recent times the manufacturing businesses are being restricted from incorporating as LLP on the ground that manufacturing activities does not fall under the definition of `business’ as per the Limited Liability Partnership Act, 2008. Similarly the conversion of private and unlisted companies into LLP has been restricted now on the same grounds."

Considering the strong criticism of MCA move in media and representation of ICSI, MCA invoked the OM No. CRC/LLP/e-Forms dated 6 March 2019 restricting formation of LLP for manufacturing and allied activities with effect from 17 April 2019. Now LLPs can be registered with manufacturing and allied activity as well.

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Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views, official policy or position of GlobalLinker. 

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Ravi Haresh Kariya

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