Proceedure for employee transfer for merging two companies pvt ltd companies

Dear Sir/Madam,

We have two private limited companies with 4 employees in one and 8 employees in the other company. We are considering merging the two companies in order to introduce Employee State Insurance (ESI). Could you please provide guidance on the procedures for merging the two firms?

Thanks and Regards,
Parvati Hoogar

One of the companies is a partnership company. We are merging the partnership company into the sister private limited company. In the partnership company, we have 4 employees who need to be transferred to the sister private limited company.

I would like to know the procedure to be followed for transferring these 4 employees to the sister private limited company. What kind of documentation or letters do we need to provide for the employees?

In the case of any employee still serving under a 1-year service agreement with an active bond, do we need to prepare a new service agreement in the sister private limited company's name? If yes to the above query, what would be his/her service period considered in the service agreement under the service bond?

The process would involve dissolution of the partnership firm and suitably amending the incorporation of the private Ltd. company to take over the assets and liabilities of the partnership firm. But confining the answer to the human aspect, it needs to be decided whether there is going to be continuity in service or not.

The better course to avoid all future complications would be to make a clean beginning by making a full and final settlement of all service claims of all the employees with regard to the partnership firm and start afresh in the private limited company as fresh entrants, with a new offer of appointment, probation, etc.

The alternative providing for continuity could be by issuing a new order by the private limited company specifying the terms of service like continuing the service agreement bond with the partnership firm, other weightage for past service, etc. Take acceptance of the transfer terms by the employees under transfer to the private Ltd. company. The terms could be as decided by the new company and there is no hard and fast rule in this regard.

No merging or amalgamation is possible. However, assets and liabilities of the partnership firm can be taken over by the limited company in exchange for shares allotted to the partners of the partnership firm. Another alternative is to convert the partnership firm into a limited company and then merge the two companies or amalgamate them. As the two establishments are different in nature, and their proprietorships are different.

Through this process, one of the establishments will lose its existence. The best approach is to provide a Full and Final settlement to the workmen of the establishment that is going to cease its existence. Subsequently, enroll in the new establishment, but you need to take this matter seriously without any lapses. If necessary, seek legal opinion from someone specializing in company registration matters.