Restrictions on formation of LLP with Manufacturing Activities withdrawn by MCA By CS Dhrumil Gokani



1. Issued Circular bearing Vide OM No. CRC/LLP/e-Forms, Government of India, Ministry of Corporate Affairs, Central Registration Centre, Office Memorandum Dated 03.2019.

No. CRC/LLP/e-Forms
Government of India
Ministry of Corporate Affairs
Central Registration Centre

Manesar

Dated: 6th March, 2019

OFFICE MEMORANDUM

Subject: Business activities to be carried out by Limited liability Partnerships to exclude manufacturing & allied activities

It is stated that Limited Liability Partnerships (LLPs) as body corporates have been set up for the purposes of carrying out business activities related to the service sector. This issue was also brought up in the Review Workshop on Enforcement held under the Chairmanship of Secretary, MCA on 19th & 20th December, 2018. As per Para 5 of the Minutes of the said workshop which have been circulated, it has been stated that ‘object of LLP is Mainly for professional services and not manufacturing activity’ Further, it has also been stated that ‘conversion of company doing manufacturing activity into LLP should not be allowed’ and other conversions of Company to LLP are not to be allowed easily and the compliances should be checked prior to conversion.

“Business” is defined as per Section 2(1)(e) of the LIP Act, 2008 as including trade, profession, service and occupation. Manufacturing & allied activities have been positively excluded from this definition. Hence, incorporation of LLPs and conversion into LLPs with the proposed business activity(ies) including manufacturing & allied activities are not to be allowed.

The above is for compliance with immediate effect.
(S P Kumar)
Registrar of Companies,
Central Registration Centre, Manesar

To,
All Officers of CRC

Subject: Business Activities to be carried out by the LLPs to exclude manufacturing & Allied Activities

It stated that the LLPs as body corporate has been set up for the purposes of carrying out business activities related to the service sector. And it should not include manufacturing activities. It further stated that Conversions of Company doing manufacturing activity into LLP should not be allowed.

So after this OM Circular, it was not possible to Form the LLP carrying Manufacturing and Allied activities.

2. Representation by “The Institute of Company Secretaries of India” on 8th April 2019.

MCA/2019 8th April, 2019

Shri Injeti Srinivas
Secretary
Ministry of Corporate Affairs
Government of India
Shastri Bhawan
Dr. Rajendra Prasad Road
New Delhi — 110 001

Sir,

Subject: Eligibility of Manufacturing Businesses to form an LLP —Reg. In India, from a long time, a need has been felt to provide for a business structure that would combine the flexibility of a partnership and the benefits of limited liability of a company at a minimal compliance cost.

Since the introduction of limited liability partnership in April, 2009, India is witnessing an upward moving trend in LLP registrations and conversion of traditional unlimited partnerships to the LLPs giving it a sought-after status in the Indian corporate scenario and all sorts of businesses including manufacturing have been allowed to form a Limited Liability Partnership.

However, it has been noticed that in recent times the manufacturing businesses are being restricted from incorporating as LLP on the ground that manufacturing activities do 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.

India is going the extra mile to improve ease of doing business and corporatization of unincorporated activities. Corporatization is the need of the hour and introduction of LLP and OPC was one such step to achieve the goal. One Person Company is a perfect combination of the characteristics of a company and the freedom of a sole proprietorship. The concept opens up an avenue of possibilities for entrepreneurs who can take the advantages of limited liability and corporatization. Similarly, a Limited Liability Partnership opens avenues for those who want to avail the benefits of limited liability but do not want to open a company and rather join hands with one or more partners to conduct a business as an incorporated entity.

The entire world is gradually shifting towards one global market without any trade barriers between the countries. A small organization led by few partners or professionals cannot think of growth on large scale without corporatizing itself and Government of India is also taking a number of initiatives like the reduction of corporate tax rates, simplification of the company registration process. DIN and name approval system etc., in this regard.

The genesis of LLP law and the recommendation of J.J. Irani Committee in 2005 read under:

“In view of the potential for growth of the service sector, requirement of providing flexibility to small enterprises to participate in joint ventures and agreements that enable them to access technology and bring together business synergies and to face the increasing global competition enabled through WTO etc., the formation of Limited Liability Partnerships (LLPs) should be encouraged.”

“To qualify for exemptions, a small company should however neither be a holding nor a subsidiary of any other company. However, the Committee does not feel the need for providing special internal governance and constitutional regime to small companies. This is likely to come in the way of their future growth. Instead, the Committee recommends enabling of new vehicles for business, such as Limited Liability Partnerships, through separate legislation, if necessary.”

The objective does not seem to restrict manufacturing entities as LLP.

Having regard to the above interpretations and justification in this regard, as appended at Annexure I, we kindly submit here that the position of Manufacturing Sector needs clarification and allowed to register as a Limited Liability Partnership under the Limited Liability Partnership Act, 2008. Further, in case there is an apprehension that manufacturing businesses incorporated as LLPs would become very large and therefore not suitable as an LLP entity, a threshold limit on share capital or turnover may be considered as in the case of One Person Companies and small companies.

We shall be pleased to provide any further information as may be desired by your good self.

Thanking you,
(CS Ashok Kumar Dixit)
Officiating Secretary

It represented how LLP is the Integral Part of Corporate growth and how it is accelerating the ease of Doing Business and Corporatization of un-incorporated entities in India. And how it is becoming easy for a small group of people or professionals to kick start his business by forming Limited Liability Partnership.

And further ICSI also represented the Definition of word “Business” as per Section 2(1)(e) of the LLP Act, 2008 which includes every trade, profession, service, and occupation.

Stated further that when the Definition is exhaustive as well as inclusive and it is not restricting the manufacturing & allied activities than why we should restrict its scope by interpreting it narrowly.

And also some of the case laws were cited in which words “means and include” were interpreted. And through Clause 19 of the Constitution of India ICSI tried to clarify more the term “Business” and “Occupation".

And finally through the LLP rules, 2009 with the International perspective of the LLPs which showed the intention of the legislature for forming the LLP.

3. Finally removal of Restrictions on LLP for Manufacturing and Allied activities with immediate effect.

Considering the Strong Arguments against MCA move in Media and representation of ICSI, MCA invoked the OM restriction formation of LLP for manufacturing & allied activities with immediate effect.

Conclusion:- After the above mentioned circular with immediate effect i.e 17.04.2019 you can freely form LLP with manufacturing and allied activities. And there are no further any restrictions regarding it.

Advertise With Us

Click here to read the disclaimer


Write a Comment