Can Two Pvt Ltd Companies Legally Share the Same Factory Premises? Seeking Clarification on Licenses and Agreements

Dear Experts,

Clarification on Manufacturing Units in the Same Premises

1. Can one have two manufacturing units (Pvt Ltd companies) in the same premises?
2. Can we obtain a factory license and a trade license for the second company also for the same premises legally?
3. Can we have a Leave & License agreement covering the whole premises for both companies?

Further Inputs

1. These two units are separate Pvt Ltd companies with common Directors.
2. Both have separate registrations with GST, PF & ESI.
3. One company (30 years old and established) caters to Government orders, and the second company is about to start production.
4. Both companies have similar products to manufacture.

Thank you.

Factory Licenses and Trade Licenses on the Same Premises

The department will not grant you two factory licenses on the same premises. Instead, you should consider one company handling manufacturing and the other engaging in trading or assigning production on a job-work basis to the first one.

Trade Licenses for Different Companies

The government may issue a trade license to the same premises for different companies because they often do not check thoroughly before issuing the trade license. However, this depends on local laws. You must check the regulations to ensure you do not face issues later due to false declarations.

Lease and License Agreements for Two Companies

Having a lease and license agreement for two companies in the same area is possible but not legally correct. It may lead to complications if you have a dispute with your landlord in the future. The existence of two overlapping agreements could suggest to authorities (and the courts) that there was an intention of fraud.

Common directors make little difference here as the companies are separate legal entities.

Thank you very much, Saswata Banerjee, for the very useful tips. Will the Pollution Control Board give consent to manufacture (for the 2nd company) and continue to operate for the first company? Thank you once again.

Possibility of Obtaining Two Factory Licenses Under One Premises

It is possible to get two factory licenses under one premises. It will be required to have proper demarcation for the two different factories. Please speak with the local factory directorate for better clarification. There are examples in West Bengal of such conditions.

It appears from the submission that both organizations are, in the true sense, separate, and hopefully, they have different balance sheets as well.

Consent from the Pollution Control Board

The Pollution Control Board will also give consent if the new factory fulfills all the norms as per PCB.

Leave Rules and Legal Considerations

Both factories may have the same leave rules, and there are no legal issues.

Regards, S K Bandyopadhyay (WB, Howrah) CEO-USD HR Solutions [Phone Number Removed For Privacy-Reasons] [Email Removed For Privacy Reasons] USD HR Solutions – To strive towards excellence with effort and integrity

Consent for the Same Plant and Equipment

I am not sure whether the PCB will give two consents for the same plant and equipment. This was probably not considered when the rules were framed.

After you get your license, you can go and speak to the local PCB office. They are quite helpful in general. Normally, a factory will have only one consent, so I don't think it will work for you.

For instance, there is a specified limit for water consumption. If multiple licenses were allowed, everyone could acquire three licenses and obtain three times the water consumption permitted under the act or discharge three times the effluents. Therefore, I really doubt that you will receive multiple consents.

Dear Colleague

For understanding whether there can be two factories on the same premises, we need to understand what Section 4 of the Factories Act 1948 says:

Sec 4. Power to declare different departments to be separate factories or two or more factories to be a single factory.

The State Government may, [on its own or] on an application made in this behalf by an occupier, direct, by an order in writing [and subject to such conditions as it may deem fit that for all or any of the purposes of this Act different departments or branches of a factory of the occupier specified in the application shall be treated as separate factories or that two or more factories of the occupier specified in the application shall be treated as a single factory:] [Provided that no order under this section shall be made by the State Government on its own motion unless an opportunity of being heard is given to the occupier.]

Hence, it is quite possible to operate two factories on the same premises if the State Government is convinced of this. In practicality, there should be no connection or mix-up in the manufacturing process between the two factories.

- The initial process until packing should be separate,
- Accounting should be separate,
- Packing should be separate,
- Boundaries of the two factories should be clearly demarcated,
- Assets and machinery should be separate,
- Manpower should be separate, and Factory 1 workers should not work in Factory 2,
- Separate Factory Manager,
- Separate Occupier,
- Separate EB connection for HT Lines,
- Separate List of Directors (here at least one director should be different in both companies, and you cannot have the same list of directors),
- Separate entry and exit gates,
- Separate factories registers,
- Distinguishing uniforms for employees,
- No common or shared facilities except those which are specifically allowed under the Factories Act,
- Separate books of accounts and production accounts, sales accounts.

Separate consent order is possible provided you have two separate factory licenses and two EB connection documents, as well as only when you have a separate set of air, water pollution control systems in place. This may call for a huge investment, I guess.

Hence, you may have a detailed discussion with your State Industrial Safety and Health Department officials in writing, as well as with the Pollution Control Department official (in writing), well in advance before proceeding to either call.

Kindly have a SWOT analysis done by a team along with top management on what are the benefits and advantages as well as demerits, and then proceed with whichever is the best advantage for the company as such.

Licenses Based on Credentials and Arm's Length Agreement

Is it not possible to get the licenses purely based on their credentials and coexist/cohabit with an "arm's length agreement"?

Would love to get opinions.

Operating Two Factories on the Same Premises

It is possible to have two factories on the same premises. Factory inspector approvals with plans are needed, with complete demarcation of activities. Separate electric supply from the electricity board is required. Pollution control board approval is necessary; if one company with an effluent treatment plant grants consent, then consent can be extended to another company. An agreement has to be drawn up for such operations for better clarity.

Regards, Milind Prabhune
Elantas Beck India Ltd, Pune

Building Two Factories on the Same Plot

Anju, can you build two buildings on the same plot? I mean the same plot, not two parts of the same plot. In the same way, you cannot have two factories in the same place.

The law allows two separate factories to be in the same physical compound. However, the OP is clearly stating that both factories will be covering the entire area. How exactly will that work? Please tell me.

Sir, my take on this is different. We had 11 separately registered factories on the same premises. I am told that in Bhilai Steel Plant, there are 50 factories on its premises, all individually registered. The demarcation into separate factories is possible as long as the manufacturing process is carried out in both premises, employing 10 persons if power is used; otherwise, there are twenty people working in each such premise. Registering them as separate factories has a lot of disadvantages. Compliances like canteen, restroom, ambulance, Welfare Officer, Safety Officer, etc., the Factory Inspector would insist individually for each factory, and the returns and formats have to be sent in both cases. This is not a mean task.

As regards leave and license, it is possible to have a common agreement with the landlord for running both firms with a clear mention of both legal entities.

Dear Narsimha,

Can one have two manufacturing units (Pvt Ltd companies) in the same premises?

Two manufacturing private limited factories can work, but both factories must have separate premises, meaning they are separate and demarcated by a wall.

Can we get a factory license and a trade license for the second company also for the same premises legally?

Two different factories with more than 10 persons working and independent power supply can obtain an independent factory license.

Can we have a Leave & License agreement encompassing the whole premises for both companies?

No, two different private limited companies cannot have a Leave & License agreement for a single premises. This would be a violation.

Further Inputs:

1. These two units are separate Pvt Ltd companies with common directors. Common directors are possible.

2. Both have separate registrations with GST, PF & ESI, which is possible.

3. One company (30 years old and active) caters to government orders, while the second company (about to start production) can begin operations beside the premises.

4. Both companies manufacture similar products but must do so on separate premises.

Regarding Pollution Control Board and Consent to Establish (CCA/CTO), it depends on the product being manufactured and the raw materials used, but the premises must be separate. This is the current industrial practice in Gujarat.

Please let me know if you need any further clarification or assistance.

Best regards

Financial Integrality and Applicability of Labor Laws

You can have any number of factories within a compound. However, if there exists financial integrality, i.e., the transfer of funds from one factory to another for the purpose of implementing labor laws such as the Employees Provident Fund Act, ESI Act, ID Act, Gratuity Act, etc., the establishments will be grouped together. The total number of employees collectively will determine the applicability of these laws.

Applicability of ESI and PF

For the applicability of ESI, even though it requires only 10 workers, a unit with fewer than 10 workers will still fall under ESI if the total number of employees in other units combined exceeds 10. Similarly, for PF, if it is applicable to other units or if the total number of employees is 20 or more, units with fewer than 20 workers will also be covered. The applicability of Chapter VB of the ID Act and other similar enactments will also be determined by the total number of employees in all units combined.