With strong objections from The Institute of Company Secretaries of India, Ministry of Corporate Affairs on 17th April 2019, withdrew an office memorandum that implemented restrictions on the incorporation of Limited Liability Partnerships (LLPs) for manufacturing. The Ministry of Corporate Affairs had earlier on 6th March 2019 had issued an Office Memorandum to all the Registrar of Companies (RoCs) dictating them to reject the applications for incorporation of LLPs.
The Institute of Company Secretaries of India (ICSI), when came across the news, has raised an objection to such restriction. ICSI stated that in the recent times it was noticed that the manufacturing businesses were being restricted from incorporating as LLP on the ground that manufacturing activities do not fall under the definition of `Business’ as per the Limited Liability Partnership Act, 2008.
The decision of withdrawal of its previous order for banning the manufacturing companies to set up as LLPs is expected to bring in policy certainty for the companies in the sector. The LLPs allow small and medium businesses to have a corporate structure with nil compliance requirements. The analysts have noted that the government's approach to permitting LLPs to continue manufacturing business would adversely impact small business and the centre's agenda of Ease of Doing Business.
While the government has nullified its earlier order, it is speculated to review the entire LLP framework again.
Advantages of forming LLP:
- Easy to form
- Exists as a separate legal entity from personal life.
- Utmost freedom to run and manage own affairs
- Easy transferable ownership
- Fewer compliance requirements
