Companies Act, 2013 (“nothe Act”) does not prescribe any eligibility requirements of companies for the merger. However, it prescribes several questions which will be answered in further lines.
The Act does not prescribe any particular criteria for the merger. It is depending on the parties to decide which company to take in for the deal. The Act does not prescribe the deal size also.
There are various benefits of merger. Like taxation planning on capital gains. In case the shares of Target Company are purchased without using the merger route under the Act then there will be tax incidence of Capital Gains. If the merger is a planned properly, the same can be saved.
Yes. The process of merger if followed as per the Act then the transfer of assets will not become transfer as per the Income Tax Act, 1961 which will be a great advantage.
The processing time for merger generally takes time in case of large entities the time consumption little higher in case where more than one regulator is involved. However, in case of merger between holding and its wholly owned subsidiary company, between small companies, the process will be faster.
Yes. Foreign companies are allowed to merge with the Indian Companies and vice versa.
The companies involved in merger have to undergo the procedure laid down under Companies (Compromise, arrangement and amalgamation) Rules, 2014 as updated from time to time. Scheme of amalgamation is a document which contains the process of merger, to say how the merger will happen, what are benefits of merger for both transferor and transferee companies, how the employees of Transferor Company will be protected, what is method of accounting followed and so on.
This is the one important aspect in which many of the companies failed to merge. Human resource protection is an important aspect in a merger. The employees of the transferor company should be allowed to have the same benefits in the transferee company which they are enjoying in the transferor company. If the same is not provided in the scheme of arrangement or scheme of amalgamation, then the same can be challenged by employees unions.
Yes. In order to fix the consideration for merger valuation of shares of transferor and transferee company is very much required based on the valuation arrived at by a registered valuer an exchange ratio of shares is fixed.
In case of mergers like fast track merger, the central government approval is required. Fast track merger is applicable for holding and wholly owned subsidiary company, and small companies. Whereas in case of the other companies. The Act, requires that notice of meeting for approval of the scheme of compromise or arrangement along with other documents shall be sent to various other regulatory authorities in addition to Central Government such as:
a) Income Tax authorities
b) Reserve Bank Of India
d) the Registrar
e) the Stock Exchanges
f) the official liquidator
g) the Competition Commission of India, if necessary
h) Other sector regulators or authorities which are likely to be affected by the compromise or arrangement.
The new process under the Act does not reduce any paper work the same amount of documents are required to be provide to the authorities as it was required under the previous Companies Act, 1956. However, the amount of time is reduced.
In case of companies which are listed with stock exchanges this will be quite challenging to ensure that the interest of the public will be protected. The scheme of amalgamation should provide a detailed note on protection.
There are chances in certain cases where some of the shareholders of the company may have an objection for the scheme of merger. In such cases the Act gives an option to purchase the shareholding by the majority shareholder. However, the companies involved in merger must obtain the approval from its creditors if not taken then the merger will not happen.
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