What Is Merger/ Amalgamation/ Demerger/ Re-construction?
Amalgamation
- Combination of two or more independent business corporations into a single
enterprise.
Demerger
– Transfer and vesting of an undertaking of a company into another company.
Reconstruction- Re-organisation of share capital in any manner; varying the rights of
shareholders and/or creditors.
Corporate Restructuring Advisors in Bengaluru,
Karnataka
Broad Checklist for Mergers
- Examine
whether a Forward Merger or a Reverse Merger is more beneficial : the
factors to be considered are tax benefits, listing, etc.
- In
case of Listed Companies, obtain SEBI’s prior permission.
- Ensure
that the Main Objects or the incidental objects of the Memorandum of
Association contain the power to amalgamate.
- Ensure
that the Scheme does not violate, override or circumscribe the provisions
of securities laws or the stock exchange requirements.
- Consider
whether the merger would be covered under the Competition Act and hence,
one which requires the permission of the Competition Commission.
- Valuation
of shares for fixing the Share Exchange Ratio.
- Fairness
Report from a Merchant Banker on the Valuation Report in the case of
Listed Companies.
- Convene
a Board Meeting to approving the Scheme of Amalgamation.
- Obtain
the consent/approvals, if any, required prior to the merger.
- Prepare
the Scheme of Amalgamation and Explanatory Statement.
- The
Explanatory Statement forwarded must disclose the pre and post-merger
capital structure and shareholding pattern
- File
the scheme/petition proposed to be filed before the Court or Tribunal with
the Stock Exchanges, for their approval, at least a month before it is
presented to the Court or Tribunal.
Listed companies must also submit to the stock exchange, an Auditors’
Certificate to the effect that the accounting treatment contained in such
schemes is in compliance with all the applicable Accounting Standards.
Listed Companies must comply with the requirements of SEBI Cir CFD
/DIL/1/2014 which lays down various procedures for obtaining SEBI’s permission.
These include, obtaining share holders’ approval through Postal Ballot and
eVoting in certain cases, e.g., where the promoters would be issued additional
shares under the Scheme, where related parties are involved in the Scheme, etc.
- Receive
the approval of the Stock Exchange and the SEBI in case of Listed Company
- Apply
to the High Court / National Company Law Tribunal in Form Nos. 33 and 34
- Send a copy of the Application to the ROC within 30
days
Taxation of business restructuring and reorganization in
Bangalore, India, is subject to the provisions of the Income Tax Act, 1961.
Business restructuring and reorganization can take various forms, such as
mergers, demergers, amalgamations, and acquisitions. The tax implications will
vary based on the specific type of restructuring. Here are some key points to
consider:
1. Mergers and Amalgamations: Section 2(1B) of the Income Tax Act: Defines mergers and
amalgamations.
Tax Neutral: In general, mergers and amalgamations can be
tax-neutral if certain conditions are met. This means that the accumulated
losses and unabsorbed depreciation of the amalgamating company can be carried
forward to the amalgamated company.
Exemption: Capital gains arising from the transfer of
capital assets in a scheme of amalgamation are exempt from tax.
2. Demergers: Section 2(19AA) of the Income Tax Act: Defines demerger.
Tax Neutral: Similar to mergers, demergers can also be
tax-neutral if certain conditions are satisfied.
Exemption: Capital gains arising from the transfer of
capital assets in a scheme of demerger are exempt from tax.
3. Transfer Pricing: In case of restructuring involving international
transactions, transfer pricing regulations apply. Transactions between related
parties should be conducted at arm's length prices.
4. Stamp Duty: Stamp duty implications may arise on the transfer of assets
as per the Karnataka Stamp Act, 1957.
5. Goods and Services Tax (GST): GST implications should be considered, especially in the
case of the transfer of a business as a going concern.
6. Compliance with Regulatory Authorities: Compliance with regulatory authorities like the Securities
and Exchange Board of India (SEBI) may be required in case of listed companies.
7. Employee Stock Options (ESOPs): Tax implications related to ESOPs should be considered,
especially if there is a change in ownership or control.
Created & Posted by Navneet Kumar
CA Article at TAXAJ
TAXAJ is a consortium of CA, CS, Advocates & Professionals from specific fields to provide you a One Stop Solution for all your Business, Financial, Taxation & Legal Matters under One Roof. Some of them are: Launch Your Start-Up Company/Business, Trademark & Brand Registration, Digital Marketing, E-Stamp Paper Online, Closure of Business, Legal Services, Payroll Services, etc. For any further queries related to this or anything else visit TAXAJ
TAXAJ Corporate Services LLP