Transitioning to a Sister Company: Do I Need a New Offer Letter or Just a Promotion Notice?

Dear Seniors, I am working in a software company, and we have recently started a sister concern. There is a manager who has recently been confirmed in my organization, and my boss wants him to be shifted to the new sister concern with a higher designation.

Query Regarding Offer Letter

My query is, do I have to give a new offer letter to the manager on the letterhead of the sister concern, or do I only need to give him a letter for promotion? Please help.

Regards,

Issuing a New Appointment Letter for Transfer

You should provide him with a fresh appointment letter, mentioning the transfer, promotion, and other clauses as per your sister company.

Is the sister company in the same state or another location? If it is in another location, then you need to provide all the amenities for transferred employees, such as:

- Salary adjusted for the state's cost of living.
- Relocation allowances.
- Hardship allowance.
- Transfer of his household materials/family, with one-time fare charges covered by the employer.

Regards,
B. Anand Kumar

Issue him a new offer letter under Sister Concern Letterhead. Ensure you collect the resignation letter from the parent company. If the management wants to maintain continuity of service for the employee with the same start date as the parent company, it needs to be documented properly. I believe the CS will guide you on this matter based on the business model under which your parent company and sister firm are registered.

To avoid any legal problems and other associated issues, it is advisable to request resignation and issue a new appointment letter. Your parent company has nothing to do with his appointment. Remember, there are legal liabilities.

Regards,
Ukmitra

Transfer and Promotion Clause in Appointment Letters

Generally, the appointment letter contains the clause that "you may be transferred or deputed to any of our branches, sister concerns, or associate companies with/without extra benefits." If the appointment letter says so, no fresh letter needs to be issued except a transfer letter with or without relocation assistance as deemed fit by the organization.

The clause you mentioned would be used against an employee if he/she refuses such a transfer. However, due to certain legal implications, it is required to issue a new offer letter under the new firm due to various statutory requirements and certain legal liability clauses.

Besides, the entity/understanding in which both companies have been formed and registered between them matters; hence, it is always advised to involve a Company Secretary (CS) in such matters. In most cases I have handled, CS and Law personnel have suggested going with a new offer letter if the employee's service period is less than a year or so.

Regards,
Ukmitra

Since it was an open-ended question, the advice was open-ended. I never knew that legal implications are involved. However, it differs from case to case and varies across different industries.

Thanks for your intervention.

Regards

Now, if management wants to ensure continuity of service for the employee with the same start date as the parent company, it needs to be accounted for with proper documentation. I guess the Company Secretary (CS) will guide you on this matter depending on the model of business enterprise your parent company and sister firm are registered as.

Since it appears to be a case where the management is rewarding and reposing faith in this person for what he has done, it would be important to look after his long-term well-being and avoid a break in service that would affect his statutory gains. It may be slightly cumbersome, but nothing a decent CS can't handle well.

Regards,
Ukmitra

First, you need to decide whether the two units are independent units or integrated with each other, and whether the shift to the sister concern is after resignation from the parent unit or not. This will help you determine whether you should issue a fresh appointment letter or an order of transfer with promotion.

Regards,
B. Saikumar
In-House

I think Sadaf Khan is asking for our help to make that very decision. Is that right, Sadaf? Also, what is your CS saying?

I have a query regarding whether I should issue a new offer letter to the Manager as he has been promoted, resulting in changes to his roles and responsibilities. The sister concern is a small unit with 4-5 employees currently, while my parent company has a staff of 50 employees. The manager has not yet resigned from the parent company, and my boss wants him to transition to this small unit. Essentially, he will be the sole Senior Manager for this sister concern.

Thank you.

Thank you, Sadaf. I believe that in this case, your query has been addressed by Ukmitra, Saiconsult, and myself. Based on their comments, I suggest you discuss this with your CS and proceed. It is important to involve the star performer in this process as transitioning from a large company to a start-up may make him somewhat uncomfortable. Please be aware that he will lose his EPF benefits and similar perks. Therefore, you and your CS should have a discussion with him, address any concerns he may have transparently, and assist him in making the decision that aligns with your company's goals. Keep in mind that persuading him to make this shift, agree to it, and feel positive about it is crucial for the company's interests, and this will be your responsibility.

Please keep us updated on the progress. Best of luck to both of you.

Regards

My inputs are only to help Sadaf deal with the situation since it is the company that should decide whether the sister concern is an independent unit engaged in a different business line or if it is part of the Parent unit, formed to supplement the business of the parent unit. In which case, there can be a transfer to the sister concern with a promotion. If there is no issue of independent units and it is immaterial, then as you said, it is advisable to treat it as a mere transfer to protect the continuity of service and other benefits like P.F. and gratuity to reward an efficient employee. I agree with you.

Regards,
B. Saikumar
Mumbai

Dear All,

"Sister concern" has not been defined in the Indian IT Act and is often used for entities that have the same directors of the parent company as stakeholders. I am not sure if the sister concern in question is a legal entity at all. In such a case, there is no need to issue a fresh employment letter. One can issue a promotion letter with a transfer order to the relevant department/wing/sister concern. Necessary changes in wage and attendance registers can be made.

If the sister concern is a separate legal entity, then you have to follow the complete separation process as per relevant rules and then proceed with the complete joining and induction process in the new entity.

Regards