International Joint Ventures and Merger & Acquisitions

Can an Indian LLP Merge With Indian Company?

August 07, 2018

LLP as a business entity comes under the Limited Liability Partnership Act, 2008 (LLP Act) while Private Companies are incorporated under

LLP as a business entity comes under the Limited Liability Partnership Act, 2008 (LLP Act) while Private Companies are incorporated under the Companies Act, 1956 or Companies Act, 2013 ("Act"). LLP Act provides provisions for the mélange of LLP whilst The Company Act targets the business restructuring of the companies. Both the laws restrain from commenting whether a LLP can merge with a company or vice versa.
Amalgamation of a LLP with an Indian Private or Public Limited Company has been a question of great interest lately. The precocious decision of National Company Law Tribunal (NCLT), Chennai Bench by taking into consideration the purposive interpretation of the Company Act, 2013 (Sections 230 – 234) and LLP Act, 2008 (Sections 60-62) has changed everything. The decision has overwhelmed the business transaction resolutions by opening new avenues for mergers and acquisitions (M&A).

This revolutionary judgment happened while the Bench was hearing an amalgamation petition of Real Image LLP with Qube Cinema Technologies Pvt Ltd. Both the companies are engaged in business of establishing or acquiring audio and video laboratories for recording, re-recording, mixing, editing, computer graphics and special effects for films, television, video and radio productions, etc.

The NCLT declared that the rules are designed to ease the process of doing business and to create a desirable business environment. The bench observed that Section 234 of the Company Act, 2013 allows merger between Foreign LLP and Indian Company but under Section 232 no such provision is made for Indian LLPs. According to the Bench, if the Parliament permits Foreign LLPs to merge with Indian Companies then prohibiting any Indian LLP from merging with an Indian Company would not be equitable. The bench further ascertained that such amalgamation does not require any sanction from legal bar too.

While this judgment has provided the M&A professionals a new business tool but still it has some unanswered questions. It would bring much clarity to future restructuring if the government defines the given process under the Company Act, the LLP Act and the IT Act. At present, the provision of the Section 391-394 of the Company Act will be applicable for merger but still the ambiguity concerning the tax payments and lack of well-defined legal provisions might cause problems in future. It would be better if the tax payers exercise caution and prepare their defense in case any litigation arises post such mergers.

From a business standpoint, merging of business is both a fascination and complex process. It requires definite knowledge along with the coordination and guidance of experienced advisors. We have successfully advised and maneuvered dozens of mergers in past few years. With our knowledge and experience, we have developed a method to tackle the process with maximum guarantee of success.

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