Who Pays EPF When You Lease Your Business? Seeking Advice on Liability and Company Code

Hi,

I rented my business (premises + operations) to an individual. Please advise who will have the liability to pay the EPF during the tenure. Can I surrender my EPF Company Code on this basis?

If you have not surrendered the PF registration, the liability will fall on you because you are the employer as per PF records. Therefore, if you have no intention of starting/resuming the operations on your own, then you may surrender the RC. But before doing so, please seek a second opinion because obtaining registration in the future will be very difficult. This also applies to ESI, Commercial Tax, Central Excise, and other registrations.

Madhu.T.K

Clarification on Leasing Your Business

You say you have leased your premises and operations. Exactly what does that mean? Have you sold your business, or is somebody running it for you on a profit-sharing basis? Are the employees still employed by you, or have they been transferred to the new person? Who is paying their salaries?

The answer to your question will depend on various factors. If you provide the complete details of what exactly you have done in the past and currently, then we can come up with a proper answer.

Hi experts,

I have leased/rented it. I do not get profit sharing but a fixed rent. Employees' salary will be paid by the tenant. No, I have not sold my business; I have let the tenant use, operate, and earn. I do not have plans of taking over the business again. If I have no tenant, I will close it. In addition, the firm will never have more than 5 employees. We used to have 5 employees earlier when the minimum employee count applicability clause was 5.

Once covered by PF (and other Acts), you will continue to be covered irrespective of the number of employees employed. If you do not surrender your registration, the liability will come to you only. Moreover, the tenant who takes over the show will be undertaking a liability like PF, even though he is not supposed to have it with such a small number of employees. Therefore, before signing the agreement, ensure that the RC is canceled and no liability exists on it.

Madhu.T.K

What you need to do is as follows:

1. You have to close your business activities and surrender the applicable licenses, such as shop/factory act licenses, food license, etc.

2. You should inform the EPFO about the closure of the business and cancel the EPF registration.

3. You can lease out the premises (and not the operations) on a Leave and License basis and enjoy the license fees/rent.

4. Try to avoid associating the name or brand with the new business activity that will be undertaken by the licensee/tenant.

5. If the licensee's business falls under EPFO coverage, it will be the sole responsibility of the licensee. As the owner of the premises, it does not come under your purview. Therefore, any further liability of the licensee towards EPFO would not be your responsibility.

You need to follow all legal steps, and don't worry.

Regards, Pramod Thakar

Hello Madhu Sir,

Thank you for the information. My question is, can I surrender my RC on the basis that I am going to rent out? If yes, what would be the process?

Surrendering the RC and Seeking Advice

You can surrender the RC. Meet your Enforcement Officer and take advice from them. You have to submit the returns up to date and get a no-dues certificate from the Officer. This may take time.

Alternatively, you can ask the tenant to continue the PF registration but should get Form 5A in their name. Form 5F is a return of ownership in which the name of the person responsible for payment of contribution and who can be convicted in case of failure to pay the contribution will be mentioned. Please take the advice of your PF Enforcement Officer in this regard.

Regards, Madhu.T.K

Your post does not make sense from the accounting and legal standpoint. Probably it's a question of using words that make sense to you but not to others. You have leased/rented out your business. Well, that is not possible. There is no such concept. You have perhaps rented out your office/shop. You cannot rent out your business as such. If someone is running your business for you, then you have a management/commission arrangement with him. In that case, you will be actually liable for everything, and the payment should be made by or on your behalf.

If, on the other hand, the person is running the business in his own name, then you have sold your business to him. You may have received no lump sum consideration, or you may have a royalty from the business, but the business probably no longer belongs to you. The answer can be given only after seeing the agreement. Probably a key point is: if you want the business back, can he refuse to give it back? Or if he stops paying you "rent," can he continue to operate the business, or can you stop him? (Note, I am not talking about rent for the premises.)

The answer to your question depends on the above.

If you still own the business, with someone running it, the agreement of who is liable is only restricted between yourself. The government and statutory authorities only recognize you as liable. The payment of statutory dues also must be made strictly in your name.

If you no longer own the business, then you can close all the registrations, except any tax registrations in your personal name that apply even otherwise.

Regards

Promod, thank you for the detailed steps for closure. I will definitely need this at a certain point.

Saswata, thank you for the elaborated advice. My scenario falls under the situation where my business premise is operated by someone else, and I receive a fixed royalty/rent. He is using my license. So, as you said, the liability will be on me.

Madhu, thank you for your advice. I will still consult with the Enforcement Officer and check the scenario. If he does not accept the surrender, I will change Form 5A and have the tenant's name on it.

Dear Mr. Brij,

The present scenario mentioned by you would not result in the cancellation of your EPF registration at all. Not only EPF, but all your business-relevant licenses as well. The arrangement you have made with the third party is to maintain business operations like the execution of work. If you expect to be relieved from the responsibilities, it can't be possible in this scenario. Do not waste your time, efforts, and money trying to find a solution under these circumstances.