The corporate affairs ministry has withdrawn its directions restricting Limited Liability Partnerships (LLPs) from engaging in manufacturing activities.
Concerns were raised in various quarters about an office memorandum issued by the ministry earlier this month, wherein LLPs were restricted from manufacturing and allied activities.
The ministry is implementing the Limited Liability Partnership Act.
"Manufacturing & allied activities were restricted in LLPs vide OM (Office Memorandum)... dated 06.03.2019. This OM invoking the restriction regarding manufacturing & allied activities has been withdrawn with immediate effect," the ministry said in a message posted on its website.
In the memorandum issued on March 6, the ministry had said that LLPs as body corporates have been set up for the purposes of carrying out business activities related to the service sector.
"Incorporation of LLPs and conversion of LLPs with the proposed business activity (ies), including manufacturing & allied activities are not be allowed," the memorandum had said.
Consultancy Corporate Professionals' Founder Pavan Kumar Vijay said there was a misinterpretation with the memorandum and that has now been rectified.
"When the LLP Law came into existence, no where it was mentioned that LLPs were only for the purpose of services... That was a wrong interpretation," he noted.
Many entities had converted their manufacturing companies into LLPs.
The Institute of Company Secretaries of India (ICSI) had also flagged concerns about the memorandum to the ministry.
An LLP is a corporate business vehicle that provides benefits of limited liability while allowing its members the flexibility for organising their internal structure as a partnership, as per the ministry.