ICSI advocates on the eligibility of Manufacturing Businesses to form an LLP

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Studycafe | Apr 12, 2019 | Views 1099408

ICSI advocates on the eligibility of Manufacturing Businesses to form an LLP

ICSI advocates on the eligibility of Manufacturing Businesses to form an LLP:
The Institute of Companies Secretaries of India (ICSI) has written a letter to Secretary, Ministry of Corporate Affairs (MCA) and advocated on the eligibility of Manufacturing Businesses to form an LLP.
According to the ICSI, the genesis of LLP law and the recommendation of J.J. Irani Committee in 2005 do not seem to restrict manufacturing entities as LLP.
In view of the potential for growth of the service sector, requirement of providing flexibility to small enterprises to participate in joint ventures and agreements that enable them to access technology and bring together business synergies and to face the increasing global competition enabled through WTO etc., the formation of Limited Liability Partnerships (LLPs) should be encouraged.
Below is extract of Letter Written to MCA by ICSI:

MCA/2019

8thApril,2019

Shri Injeti Srinivas
Secretary
Ministry of Corporate Affairs
Government of India
Shastri Bhawan
Dr. Rajendra Prasad Road
New Delhi 110 001

sir,
Subject: Eligibility of Manufacturing Businesses to form an LLP Reg.
In India, from a long time, a need has been felt to provide for a business structure that would combine the flexibility of a partnership and the benefits of limited liability of a company at a minimal compliance cost.
Since the introduction of limited liability partnership in April, 2009, India is witnessing an upward moving trend in LLP registrations and conversion of traditional unlimited partnerships to the LLPs giving it a sought-after status in the Indian corporate scenario and all sorts of businesses including manufacturing have been allowed to form a Limited Liability Partnership.
However, it has been noticed that in recent times the manufacturing businesses are being restricted from incorporating as LLP on the ground that manufacturing activities does not fall under the definition of `Business as per the Limited Liability Partnership Act, 2008.Similarly the conversion of private and unlisted companies into LLP has been restricted now on the same grounds.
India is going extra mile to improve ease of doing businessand corporatisation of unincorporated activities. Corporatization is the need of the hour and introduction of LLP and OPC was one such step to achieve the goal. One Person Company is a perfect combination of the characteristics of a company and the freedom of a sole proprietorship. The concept opens up an avenue of possibilities for entrepreneurs who can take the advantages of limited liability and corporatization. Similarly a Limited Liability Partnership opens avenues for those who want to avail the benefits of limited liability but do not want to open a company and rather join hands with one or more partners to conduct a business as an incorporated entity.
The entire world is gradually shifting towards one global market without any trade barriers between the countries. A small organization led by few partners or professionals cannot think of growth on large scale without corporatising itself and Government of India is also taking number of initiatives like reduction of corporate tax rates, simplification of company registration process. DIN and name approval system etc., in this regard.
The genesis of LLP law and the recommendation of J.J. Irani Committee in 2005 read under:
In view of the potential for growth of the service sector, requirement of providing flexibility to small enterprises to participate in joint ventures and agreements that enable them to access technology and bring together business synergies and to face the increasing global competition enabled through WTO etc., the formation of Limited Liability Partnerships (LLPs) should be encouraged.
To qualify for exemptions, a small company should however neither be a holding nor a subsidiary of any other company. However, the Committee does not feel the need for providing a special internal governance and constitutional regime to small companies. This is likely to come in the way of their future growth. Instead, the Committee recommends enabling of new vehicles for business, such as Limited Liability Partnerships, through separate legislation, if necessary.
The objective does not seem to restrict manufacturing entities as LLP.
Having regard to the above interpretations and justification in this regard, as appended atAnnexure I,we kindly submit here that the position of Manufacturing Sector needs clarification and allowed to register as a Limited Liability Partnership under the Limited Liability Partnership Act, 2008. Further, in case there is an apprehension that manufacturing businesses incorporated as LLPs would become very large and therefore not suitable as an LLP entity, a threshold limit on share capital or turnover may be considered as in the case of One Person Companies and small companies.
We shall be pleased to provide any further information as may be desired by your good self. Thanking you,
(CS Ashok Kumar Dixit)
Officiating Secretary
To Download copy of the Letter click Here

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