NCLT allows merger of LLP and private companies, opening way for M&As

The National Company Law Tribunal (NCLT) has allowed a merger of a Limited Liability Partnership (LLP) with a private company, according to a report by The Economic Times. The move may pave way for new mergers and acquisitions (M&A), opening new frontiers in the resolution space. While experts say the rules under the Companies Act, 2013 and the LLP Act, 2008 do not list provisions for such cross-entity amalgamation, the NCLT bench believes otherwise. The NCLT noted that these rules are designed to facilitate ‘ease of doing business’ and to ‘create a desirable business atmosphere', and hence it would be wrong to presume that a merger of an Indian LLP with an Indian company is prohibited. “Legislative intent behind enacting both LLP 2008 and Companies Act 2013 is to facilitate the ease of doing business and create a desirable business atmosphere for companies and LLP,“ the bench observed, adding such a merger does not require sanction from any legal bar. The bench was hearing an amalgamation petition of Real Image LLP with Qube Cinema Technologies Pvt Ltd. The tribunal's observations are forward-looking but the companies are not sure of the tax treatment that such an amalgamation would attract. "While this ruling is a welcome development, it would be good for the government to clarify the position under the Companies Act, the LLP Act and the I-T Act to provide certainty and clarity to the businesses,” Vikas Vasal, national leader – tax, Grant Thornton, in India told the paper. Vasal added that the tax implications of such a merger needs to be evaluated as there are no provisions granting a tax neutral status under tax laws. "Taxpayers need to exercise caution and prepare their defence in case of any dispute and resulting litigation until a clear tax position emerges in case of such mergers,” Vasal said. Industry experts, however, believe that the move would provide the companies with another tool for M&As. “The LLP law has no enabling provision as to amalgamation with a company and it had created an impediment for such restructuring. If this judgement holds, it will give a new lease of planning tools to M&A professionals. However, in the absence of clear legal provisions, there could be hurdles in implementation and the transaction could be tax inefficient,” Manoj Kumar, partner & head – M&A and Transactions, Corporate Professionals told the paper.

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