Incorporation/conversion into LLPs with business/ manufacturing and allied activities

Incorporation of LLPs or conversion into LLPs with the proposed business activities including manufacturing and allied activities-ICSI writes to MCA

Manufacturing & allied activities were restricted in LLPs vide OM No. CRC/LLP/e-Forms dated 06.03.2019. Now MCA has withdrawn the said OM with immediate effect.

The Institute of Companies Secretaries of India (ICSI) in a letter addressed to Secretary, Ministry of Corporate Affairs (MCA) has advocated on the eligibility of Manufacturing Businesses to form an LLP.

According to the ICSI, the genesis of LLP law and the recommendation of J.J. Irani Committee in 2005 do not seem to restrict manufacturing entities as LLP.

Quoting lengthy justification for manufacturing enterprises to be eligible to form an LLP, the ICSI has submitted that the position of Manufacturing Sector needs clarification and allowed to register as a Limited Liability Partnership under the Limited Liability Partnership Act, 2008.

Also, the ICSI has suggested that 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.

Earlier, the Central Registration Centre (CRC) of MCA in an Office Memorandum has mandated that business activities to be carried out by the Limited Liability Partnerships (LLPs) to exclude manufacturing and allied activities.

It was stated that LLPs as body corporates have been set up for the purpose of carrying out business activities related to service sector. In December 2018, this issue came for consideration in the Review Workshop on Enforcement chaired by the Secretary, MCA.

As per the minutes of the workshop, it was stated that the object of LLP is mainly for professional services and not manufacturing activities. It was also stated that conversion of company doing manufacturing activity into LLP should not be allowed.

The CRC has stated that in view of the definition of “Business” as defined in section 2(1)(e) of the LLP Act, 2008 include trading, profession, service and occupation and “manufacturing & allied activities have been positively excluded from the definition.

In view of the above, the Registrar of Companies, CRC has instructed all its officers to not to allow incorporation of LLPs or conversion into LLPs with the proposed business activities including manufacturing and allied activities.