Restriction on LLP for Manufacturing Activities Withdrawn

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. Considering the upward moving trend many new LLP’s were incorporated during this year with various objects and one of them was the “MANUFACTURING ACTIVITY” in large.

Initially before 8th April, 2019 a restriction on LLP’s was imposed restriction Vide OM No. CRC/LLP/e-Forms dated 06.03.2019. Accordingly, if LLP desires to register with manufacturing and allied activity as its main objects then 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 LLP with the object 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 06.03.2019.

The Ministry of Corporate Affairs (MCA) provided a clarification in this regard on 6th March, 2019 Vide OM No. CRC/LLP/e-Forms dated 06.03.2019. It further clarified that the object of LLP’s 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 8th April, 2019. In its representation ICSI said that “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 06.03.2019 restricting formation of LLP for manufacturing & allied activities w.e.f 17th April, 2019. Hence now LLP’s can be registered with manufacturing and allied activity also.

 

Ishita Ramani 
on 22 April 2019
Published in Corporate Law
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