Restrictions on Manufacturing Activities: MCA lifts the Ban
The Ministry of Corporate Affairs is the regulatory body for various companies which are registered in India under the Companies Act. Every legal formality related to company registrations is to be completed on its online portal.
In OM No. CRC/LLP/e-Forms dated 06.03.2019; MCA refrained various companies who were in manufacturing sector and wished to convert into Limited Liability Partnership.
This was even applicable for the private limited companies that were already into manufacturing sector. The latest notification of MCA on barring the functioning of LLP under the manufacturing sector made many business owners worry about their future plans.
Recently, a family owned entity that was carrying its manufacturing business on a small scale in Bengaluru could not convert their private limited company to Limited liability partnership.
They basically choose LLP as the alternative because it has less compliance and other benefits. However; they were not aware of the recent changes made by MCA.
Almost more than 10,000 existing LLP companies are stuck in the middle due to their nature of business i.e. manufacturing. Another similar incident happened with an entrepreneur in Mumbai is a leather dye manufacturer and wished to convert into LLP but now is advised to form a company.
So is LLP an unstable business structure?
The Limited Liability structure was introduced in India in April 2009 with the motive of easing more benefits to businesses through limited liability for all its partners.
Till now there was no bar on the nature of activities businesses may be engaged in but, for now experts believe the latest amendments may be because the concerned authorities do not consider it as a suitable business structure.
How MCA withdrew its order?
A practicing Company Secretary J Sundharesan states that if partnership firms are allowed to conduct their manufacturing activities, then there should be no harm for LLP’s to proceed with its manufacturing activities (registered in the past).
The Institute of Company Secretaries of India (ICSI) has quoted to MCA that in case manufacturing businesses will end up as a large operating unit if registered as LLP, then a provision to limit the share capital or turnover can be considered.
However; after considering all the valid reasons of practicing CS and ICSI itself, MCA withdrew its order with immediate effect.