The government may allow farmers and people engaged in handloom, handicraft or other cottage industries to form limited liability partnerships (LLPs) to let them take advantage of the light-touch regulations under the LLP Act, 2008.
In the ongoing winter session of Parliament, the government is expected to table the Corporate Laws (Amendment) Bill, 2025 that will seek to amend the LLP Act so that primary producers don’t have to go through the conventional way of creating producer companies and be subjected to a host of compliance.
“This is a new concept that will target farmers, milk producers, fishermen, weavers and rural artisans who can benefit from the lower compliance burden available to LLPs as compared to companies,” said an official.
Officials on the modification
While producer institutions have traditionally been organised in the form of co-operative societies, the concept of producer companies was introduced in Companies Act through relevant amendments. “However, it is now being felt within the government to enable producer institutions to follow the LLP model that offers ease of formation, tax benefits, lower compliance burden on top of the benefits already offered by the producer companies,” the official said.
For example, an LLP is not required to get its accounts audited unless its turnover exceeds Rs 4 million or its capital contribution exceeds Rs 2.5 million.
In 2022, the Companies Law Committee report had also recommended “the incorporation of producer LLPs that would serve as a more desirable option for small producers since LLPs have been provided with a range of relaxations in the conduct of their affairs.”
What do experts say?
Experts said that the proposed amendments are aimed at relaxing regulations for producer companies and introducing producer LLPs, boosting primary producers’ economic status. “Key benefits include reduced compliance burden, increased flexibility, improved decision-making with defined LLP model agreements. These changes align with the government’s goal of promoting ease of doing business. The amendments are expected to reinforce confidence among primary producers, leading to improved economic outcomes,” said Anjali Malhotra, partner (regulatory) at Nangia Group.
At present, producer companies, which are distinct from producer LLPs, can be registered with a minimum of 10 people under the Companies Act with an objective to collectively handle functions like production, harvesting, processing, procurement and marketing for its members. Producer organisations also play a key role in reducing transaction costs – when accessing capital and markets – and provide a platform for members to share mutually-favourable information, coordinate activities and make collective decisions. Over a period of time, it became necessary to further ease the establishment of producer companies, and to improve their functioning.