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MCA withdraws memo barring LLPs from mfg

Team registrationADVISER
Apr 18, 2019
2 min read

Mumbai: The ministry of corporate affairs (MCA), late on Tuesday night, issued an update on its website withdrawing the contentious memo that had restricted entities engaged in manufacturing from registering as a Limited Liability Partnership (LLP). This memo had also restricted private companies engaged in manufacturing from converting into LLPs.

A few sentences, posted under its update section, states: “Manufacturing and allied activities were restricted in LLPs This office memo, invoking the restriction regarding manufacturing and allied activities, has been withdrawn with immediate effect.”

The announcement follows publication of a news item in TOI’s April 16 edition, pointing out the challenges that manufacturing entities, especially smaller and medium-sized entities, would face. An LLP structure offers the benefits of corporatisation with limited liability of partners (their personal assets are ring-fenced or protected).

“This is a welcome move by the MCA and would prove helpful in clarifying the position for existing and proposed LLPs engaged in the manufacturing space, especially the small- and medium-sized enterprises that are exploring the LLP structure. Full marks to the ministry which understood their concern and took immediate steps to address the issue,” says PwC India partner (regulatory services) Anshul Jain.

Withdrawal of the memo brings relief even in case of companies which wanted to convert into LLPs. According to latest available statistics, as of February 28, as many as 10,086 companies had converted into LLPs.

“The trend of converting into LLPs is gaining popularity as the Companies Act casts an onerous burden on directors — with penalties that include imprisonment. Plus, LLPs reduce the administrative cost of doing business. Conversion is an easy process, the assets and liabilities of the company get converted into that of the LLP and there are no stamp duty implications,” says a company secretary.

The Institute of Company Secretaries of India (ICSI), which had represented to the MCA against the March 6 notification, had pointed out that it was based on an erroneous interpretation of the term ‘business’ as defined in the LLP Act. The definition of business is inclusive in nature, in no way does it seek to exclude manufacturing, production and allied activities, the ICSI had stated.