Manufacturing Units can now get LLP Registration
A Limited Liability Partnership or LLP Firm is a popular form of business in India. It is mostly preferred by the startup aspirants who wish to promote their business to a high level with limited funds.
LLP is a more preferable version of a regular partnership firm having additional benefits features such as-
- Protection of business name,
- Shield of limited liability of partners,
- Easy business listing on the registrar of companies (RoC),
- Recognition under Startup India - Standup India scheme
- As compared to a normal partnership firm, LLP firm is recognised more professionally among the clients.
However, there had been a restriction on LLP incorporation if the business entity is a manufacturing concern. The firms involved in Manufacturing & allied activities were hitherto restricted to get LLP registration.
This restriction has now been lifted by MCA and Manufacturing units can now be incorporated as LLPs in India.
Let us go in the depth of this case.
1. Which regulation had restricted Manufacturing units to get LLP registration?
On 6th March 2019, MCA had issued an Office Memorandum.
This OM had invoked the restriction for LLP incorporation of firms involved in manufacturing & allied activities. However, this OM has been withdrawn with immediate effect.
2. Why were Manufacturing units restricted to get LLP registration?
Conceptually, the manufacturing & allied activities are not covered under LLP law.
- As per the Limited Liability Partnership Act, 2008, manufacturing activities do not come under the definition of 'Business'.
- On these grounds, the MCA has stated in its OM dated 6th March 2019 that incorporation of LLPs as well as conversions into LLPs with the proposed business activity:- manufacturing & allied activities cannot be allowed.
- In recent times the manufacturing units had been restricted from LLP registration on the same grounds.
3. How come MCA withdrew the restriction on manufacturing units for LLP registration?
The restriction on manufacturing units for LLP registration was objected by Institute of Company Secretaries of India (ICSI). The matter was taken up by ICSI to MCA.
Due to the Strong Criticism by ICSI, MCA had to revoke the OM restriction on the formation of LLP for the manufacturing & allied activities.
4. What if an LLP manufacturing firm expands its operation?
Henceforth, the Manufacturing units are allowed to register as LLPs under the Limited Liability Partnership Act, 2008.
- However, there is an apprehension that if a manufacturing unit having LLP registration expands its scale of operation, it wouldn’t be suitable for it to operate as an LLP.
- In this regard, MCA has clarified that certain threshold limit on the share capital or the annual turnover shall be fixed soon for a manufacturing unit to get LLP registration. This is just similar to the case of One Person Companies (OPC) and other small companies.
- With that, the eligibility of the manufacturing units to be registered under the Limited Liability Partnership Act, 2008 has been clarified. The manufacturing units can now be registered as LLPs.
If your business is involved in manufacturing & allied activities, and you wish to incorporate it as an LLP, we can help you throughout the process of LLP registration.
If you want any sort of guidance regarding the process of LLP incorporation, you can feel free to contact our business advisor at 8881-069-069.
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