MCA withdraws Restriction on formation of LLP with manufacturing activities

MCA has allowed LLP’s to register with manufacturing and allied activity also w.e.f 17th April, 2019. OM No. CRC/LLP/e-Forms dated 06.03.2019 restricting formation of LLP for manufacturing & allied activities, has been revoked.

In OM No. CRC/LLP/e-Forms dated 06.03.2019, MCA explained that the manufacturing activities does not fall under the definition of `Business’ as per the Limited Liability Partnership Act, 2008. The object of LLP’s is mainly for professional services and not for manufacturing activities.

Institute of Company Secretaries of India (ICSI) objected to the restriction and made a representation in this regard on 8th April, 2019 where following arguments were given:

1. The definition of “business” is inclusive in nature. When there is a statutory definition, it can be exhaustive as well as inclusive. The same argument was supported by various case laws on interpretation of word “includes”. In no way, the definition of “business” excludes manufacturing, production and allied activities.
2. As per various International LLP laws, definition of the term ‘Business’ is wide enough to include any kind of legal activity to generate profit. Similar view should be taken.
3. The instructions for filling of LLP e-Form-18 (Conversion of company to LLP) specifically mentions that “Company should not be a ‘Section 8 Company’. There is no restriction with respect to manufacturing companies for conversion into an LLP.
4. In the LLP Form No. 8, Statement of Income and Expenditure includes “Sale of goods manufactured as one of the components of turnover of the LLP.
5. There are 12,770 active LLPs in Manufacturing sector. This restriction puts the status of these LLPs in question.

Considering the Strong Arguments against the restriction and criticism in media, MCA has invoked the restrictions posting a message on MCA website by MCA on 16th April 2019:

“Manufacturing activities in LLPs: Manufacturing & allied activities were restricted in LLPs vide OM No. CRC/LLP/e-Forms dated 06.03.2019. This OM invoking the restriction regarding manufacturing & allied activities has been withdrawn with immediate effect.”