How can I merge two companies in India?
Like the value of a company's goods and services is realized over time, the company may expand. It may also expand by an inorganic process, represented by a sudden increase in the workforce, clients, and infrastructure resources, enhancing the entity's overall revenues and profits. The merger of two companies in India is an excellent demonstration of inorganic growth.
The term "merger of two companies" in India refers to joining two competitors into one entity. Indian businesses are increasingly accepting the merger of two companies in India as a vital piece of company strategy and can be considered an instrument of significant expansion. The merger of two companies in India is frequently used to gain strength, increase client base, reduce competition, or enter a new market or product area in various industries, including information technology, telecommunications, and business process outsourcing. The merger of two companies in India is a theme which can be pursued to obtain entry to the market through an established brand, increase market share, eliminate competition, lower tax obligations, acquire expertise or offset the profits of one organization's losses against those of some other entity.
The merger of two Companies in India: The Concept
A corporate approach for functioning as a single legal entity is to merge with another company. The merger of two companies in India is indeed a voluntary action. The businesses that consent to mergers typically have comparable sizes and operational scopes. The merger of two companies in India is a concept undertaken to access a bigger market and clientele, decrease
competition, and obtain economies of scale. The companies might choose from various merger types depending on their goals and plans. An acquisition differs from a merger. Whereas an acquisition is the taking over of a company by another company, a merger of two companies in India occurs when two businesses come together to establish a new entity.
The merger of two companies in India can result in a more diverse pool of resources and a broader market share where those resources can be used. The merger of two companies in India enables more effective deployment of supplementary resources; it might come in the form of cost reductions, revenue enhancement (to generate more significant revenue than its two preceding standalone companies could earn), and to reduce/eliminate expenses associated with a business.
The merger of two companies in India: The process
Merging two companies in India can be complex and involve several steps. Here are some of the critical steps involved in merging two companies in India:
1. Conduct due diligence: The merger of two companies in India must start with carefully investigating the parties' companies. A thorough assessment of both companies' financial accounts, contracts, assets, liabilities, and legal duties is required to detect any possible risks or concerns that may emerge during the merger.
2. Memorandum of Association: While considering a merger of two companies in India, it is essential and crucial to carefully review the company's memorandum of association to determine whether or not it contains the necessary provisions for the merger.
3. Obtain approval from regulatory authorities: Prior to moving forward with a merger, it's crucial to secure the required regulatory clearances from the pertinent authorities. Depending on the size and nature of the merger, this may include clearances from the Securities and Exchange Board of India (SEBI), the Competition Commission of India (CCI), and other governmental organizations.
4. Negotiate the terms of the merger: The next phase is to negotiate the merger's terms after the due diligence is finished and regulatory permissions have been secured. This involves deciding on the share exchange ratio, the management structure of the combined business, and how creditors, shareholders, and employees will be managed.
5. Prepare a scheme of amalgamation: A legal document that describes the merger's terms and circumstances is called the scheme of amalgamation. The boards of both firms must accept it before being presented for approval to the appropriate authorities.
6. Obtain shareholder approval: At a special meeting, the shareholders of both companies must approve the plan pertaining to the merger of two companies in India. A majority of the shareholders must approve this.
7. Obtain court approval: The appropriate court must approve after the shareholders have approved the merger plan. The plan will be examined by the court to make sure it is just and equitable to all parties involved.
8. Complete the merger: The merger of two companies in India can be finished as soon as all necessary permissions have been received. This entails the exchange of shares, assets, and liabilities between the two companies and, if necessary, the formation of a new entity.
The merger of two companies in India: The Law
The Companies Act 2013 has taken effect, replacing the Companies Act of 1956 with several significant amendments, notably those pertaining to the merger of two companies in India.
Both the Income Tax Act of 1961 ("ITA") and the Companies Act of 1956 ("CA 1956") do not define the term "merger." However, the Companies Act 2013 (or "CA 2013") conveys the idea without precisely defining the term. A "merger" is the joining of two or more entities into one, with the goal being the organization of the combined entity into a single enterprise rather than just the collection of the assets and liabilities of the individual entities.
Companies Act, 1956- the provisions for mergers are dealt with under Sections 391 to 394 of the Act as follows:
Section 391- gives companies the authority to reach agreements or compromises with members and creditors. When a compromise or agreement is being considered between a company and its creditors or any class of creditors or between a company and its members or any class of members, the court may, upon application by the company, any creditor or member of the company, or, in the case of a company that is being wound up, by the liquidator, order a meeting of the creditors or class of creditors, or the members or class of members, as the case may be, to be called, held, and conducted.
Section 392 - grants the Tribunal the authority to compel compromise and agreement. When the Tribunal issues an order pursuant to Section 391 authorizing a compromise or an arrangement with respect to a company, it is empowered to oversee the implementation of the compromise or arrangement and may, at the time of the order's issuance or at any time thereafter, issue directions with respect to any matter or alter the compromise or arrangement as it may deem necessary for the compromise or arrangement's proper operation.
Section 393- of the Act provides that creditors and members must be informed of compromises or agreements by holding a meeting of creditors or any class of creditors, or members or any class of members, under section 391 of the Act, as the case may be.
Section 394- contains provisions that make company reorganization and merger of two companies in India easier.
The Income Tax Act of 1961 [Section 2(1A)] -defines amalgamation as the joining of one or more companies with another or the consolidation of more than one company to form a new enterprise in such a way that all of the business owners that are merging become the new company's assets and liabilities, and shareholders who own at least nine-tenths of the value of the shares in the companies that are merging become shareholders of the new company.
Fast Track Merger of two companies in India
- Amalgamation: - In India, amalgamation is the most typical type of merger. It entails the joining of two or more businesses into one. An amalgamation occurs when one or more businesses are absorbed by another company, which stays in business due to the merger. In proportion to their holdings in the absorbed companies, the shareholders of the companies that are absorbed also become shareholders of the surviving company.
- Merger by absorption: - Similar to an amalgamation, a merger via absorption involves one corporation absorbing another. The absorbing company receives the assets and liabilities of the absorbed company, which goes out of business. In proportion to their ownership stake in the absorbed company, the shareholders of the absorbed company also become shareholders of the absorbing company.
- Reverse merger: - In a reverse merger, a private company merges with a public company to become a publicly listed company. The private company acquires the shares of the public company, and the public company becomes a wholly-owned subsidiary of the private company. This allows the private company to go public without the time and expense of an initial public offering (IPO).
- Demerger- A demerger entails dividing a company into one or more businesses to create a new company. The shareholders of the former firm are then given ownership of the new company. This is frequently done to break out non-core businesses or establish separate entities concentrating on diverse business lines.
- Horizontal merger- brings together two businesses directly competing with one another and serving the same markets and product lines. For instance, Volkswagen and Rolls Royce and Lamborghini, Ford
- Vertical mergers involve joining two businesses with an existing or future buyer-seller connection, such as Ford-Bendix and Time Warner-TBS.
- Asset acquisition- An asset acquisition is when one company purchases the assets of another without taking over that company's liabilities. By doing this, the acquiring business can purchase particular assets, such as intellectual property or a manufacturing unit, without assuming the debt or other liabilities of the acquired business.
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