INC-9 Declaration

April 17, 2019

Vide OM No. CRC/LLP/e-Forms dated 06.03.2019

April 17, 2019

Home » Limited Liability Partnership » Restriction on LLP for Manufacturing activities withdrawn

Restriction on LLP for Manufacturing activities withdrawn

In India,concept of Limited Liability Partnership (LLP) was introduced in 2008 by Limited Liability Partnership Act, 2008. LLP is best combination of partnership and Company.

Initially before 8^th 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. Currently there are 12,770 active LLPs already into Manufacturing sector. If the law is restricting the same w.e f 6^th March, 2019 question for status of existing LLPs that arises.

But now, w.e.f 17^th April, 2019 MCA has withdrawn the restriction as imposed by it. A representation made by Institute of Company Secretaries of India (ICSI) on 8^th April, 2019 was duly accepted.

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.

Example: If Mr XYZ desires to form LLP proposing its main business activity as manufacturing of spices in India then in such circumstances, Mr XYZ shall not be allowed. As per Office Memorandum dated 19th March, 2019 to establish LLP for manufacturing activity if he wish to carry on business activity of manufacturing activity then he can go for Company Registration (Public or Private Limited) till 17th April, 2019.

Representation by Institute of Company Secretaries of India (ICSI) for removing restriction on LLP for Manufacturing activities withdrawn

After the News of Vide OM No. CRC/LLP/e-Forms dated 06.03.2019 regarding LLP’s cannot be registered in India to carry out manufacturing activity. The Institute of Company Secretaries of India (ICSI) on 8^th April, 2019 made a representation and objected for such restriction imposed on LLP’s regarding manufacturing and allied activities.Before proceeding further for ICSI representation, let us have a look on the Grounds of the Representation.

Grounds of ICSI Representation 8^th April, 2019

Section 2(1) (e) of the Limited Liability Partnership Act, 2008 states “business” includes every trade, profession, service and occupation. The definition of business is inclusive of manufacturing activity also.

Case law of Commercial Taxation Officer, Udaipur vs Rajasthan Taxchem Limited.

Definition of Business as per Black’s Law dictionary

Clause 19 of the Constitution of India permitting that “All citizens shall have the right to practice any profession, or to carry on any occupation, trade or business.”

Status of Existing LLPs in India carrying on Manufacturing Business whereby As per the MCA Monthly Information Bulletin on Corporate Sectors dated 31.12.2017, there are 12,770 active LLPs already into Manufacturing sector.

ICSI in its letter of representation dated 8^th April, 2019 clarified that in recent times manufacturing businesses are being restricted from incorporating as LLP on the ground that manufacturing activities does not fall under definition of `Business’ as per Limited Liability Partnership Act, 2008.

Similarly conversion of private and unlisted companies into LLP has been restricted now on the same grounds. It further stated “The entire world is gradually shifting towards one global market without any trade barriers between countries. A small organization led by few partners or professionals cannot think of growth on large scale without incorporating itself into all sectors including manufacturing and allied activities.

If it sticks itself only to services sector than it would overall indirectly can become a trade barrier.

Genesis of LLP law and recommendation of J.J. Irani Committee in 2005

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

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