Earlier, in their Office Memorandum No. CRC/LLP/e-Forms dated 06.03.2019 MCA stated that no Limited Liability Partnership could be related to any sort of manufacturing activity. This OM imposing restriction regarding manufacturing & allied activities has been withdrawn immediately.
Earlier it was clearly stated in the notice published by MCA on 06.03.2019 that any company dealing with manufacturing or any such allied activities cannot be incorporated an LLP or can be converted I to LLP, as this sector of the company does not fall under the guidelines of Limited Liability Partnership
This notice by MCA faced a huge amount of criticism from media and Institute of Company Secretaries of India (ICSI). The ICSI wrote in their letter dated 08.04.2019 that it has been brought under their notice that companies dealing with manufacturing activities cannot register as LLP as the same sector does not fall under the definition of “Business” as per Limited Liability Partnership Act, 2008.
In the same notice, any conversion of the company dealing with manufacturing business to LLP was also disbarred.
ICSI furthermore stated that as India is gradually proceeding with schemes like Make in India, Ease of Doing Business and to corporate the unincorporated activities. The need of the hour is to focus on the corporate sector of the country. With the introduction of LLPs in 2008 and OPCs in 2013, it was seen as a great step. OPC or One Person Company as a completely independent legal entity works as a perfect combination of company and sole proprietorship. The person can avail the benefits of a company while enjoying running a company. This concept was welcomed with open arms by many entrepreneurs who had limited liability and wanted no partners to run their company.
In the same way, Limited Liability Partnership is a hybrid corporation that provides the benefit of a company and the flexibility of a partnership. The entire world is gradually becoming one global market without any trade barriers between the countries. The Government of India is also taking several initiatives like reduction of corporate tax rates, simplification of the company registration process, name approval system and introducing new initiatives for the corporate sector and much more. The entire purpose of uplifting the corporate and service sector is to encourage economic development of the country by generating employment facilities.
The genesis of LLP law and the recommendation of J.J. Irani Committee in 2005 read: “Given the potential service sector growth and the requirement of providing flexibility to small enterprises for them to participate in joint ventures and agreements that may grant them the access in technology. Also to bring together business synergies and face the increasing global competition, the formation of Limited Liability Partnerships (LLPs) should be encouraged.”
Thus the withdrawal of the ban on LLP’s has been a big relief for the manufacturing sector.