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MERGER & ACQUISITION

MERGER & ACQUISITION

By- Aditi Singh (LLB from Galgotias University)

In the era where every corporate body is headed in the direction of earning profit with significant growth in its operational areas, we cannot overlook the two important aspects of the corporate world known as MERGER & ACQUISITION of the entities. The growth of the business lies upon the effectiveness of its product and services over time. Henceforth, the two aspects are accepted as the crucial element for business strategy by Indian business.

WHAT IS MERGER & ACQUISITION??

Merger, in simple words it could be explained as the combination of two corporate bodies or entities into a single entity. Under this, the two entities with their mutual consent dissolve their two different identities and come out with one single identity in the market.

On the other hand, Acquisition can be explained as when a corporate body buys out the other to combine that body with itself or can also be said when one entity is taken over by the other entity. Under Acquisition the acquiring company does not lose its identity in the market but the acquired company does.

WHY MERGER & ACQUISITION??

It’s better to get consolidated rather than dissolve, is what Merger & Acquisition work for, Any corporate body or entity facing a downfall or depression period in its survival in the economy, always has an option to get merged or acquired by a well established sound corporate body in order to preserve itself and its survival rather than to diffuse its existence in the economy.

Merger & Acquisition helps the corporate bodies to expand itself and its operational areas, provides paths to continue its survival in the economy, helps in maximization of profit earning, strengthens its customers and stakeholders in the market, provides goodwill to the company and much more. The key highlighted reasons for Merger & Acquisition are:

•    Market share by providing broader market access.

•    Decrease in competition together by consolidating.

•    Cost reduction.

•    Security for smaller companies in getting merged with well-established companies.

•    Skills sharing.

•    To accelerate growth in the economy.

•    Tactical reconstruction of entities.

•    Risk diversification.

•    Reduction in tax liability.

•    Accumulating profit of one entity against the loss of other entity.

The concept of merger and acquisition is not restricted to a specific field rather it has its influence in a wide array of fields such as Information technology, telecommunication, service providing business, traditional business and many more. Merger and Acquisition could be used as a route to access market for the companies who are new to the market or face tough competition in its survival.

LEGAL AMBIT OF MERGER & ACQUISITION

The agreement of Merger and Acquisition signed between the two different entities is required to be regulated within the legal framework for the same. The process for Merger & Acquisition in India is driven by the court which is a long drawn process and hence complicated. The agreement signed between the parties is not sufficient to provide a legal shelter to it. Some of the mandatory provision for the regulation of Merger & Acquisition of the entities are:

1. COMPANIES ACT, 2013

The provision under section 230 to 240 of Companies Act 2013 states the general guidelines to monitor the agreement signed between two different entities in the context of merger & acquisition.

    Section 230- the power to compromise or make arrangements with creditors and members.

    Section 231- the power of the tribunal to enforce compromise or arrangement.

    Section 232- merger & amalgamation of companies.

    Section 233- merger & amalgamation of certain companies.

    Section 234- M&A of the company with a foreign company.

    Section 235- powers related to the acquisition of shares.

    Section 236- purchase of minority shareholding.

    Section 237- the power of the central government for M&A.

    Section 238- registration related to the transfer of shares.

    Section 239- records of amalgamated companies.

    Section 240- liability for offenses related to M&A.

2. SEBI TAKEOVER REGULATIONS FOR M&A

Primarily the mergers are monitored by the SEBI guidelines which state that the consolidation of shares and voting rights should be ranged between 15% to 55%, the acquiring company should not take over more than 5% of shares or voting rights of the targeted company during any financial year. 

3. COMPETITION ACT, 2002

The guidelines stated by the provision are as follows:

    Section 5- of the act deals with the word COMBINATION in context of assets and turnover of the company either in India or in India & outside India.

    Section 6- of the act states that no company or person shall be engaged in any amalgamation which may cause an adverse effect on competition within the relatable market in India and shall be held void if does.

4. THE INDIAN INCOME TAX ACT (ITA), 1961

The act does not define the term of the merger but streamlines the process of restructuring, amalgamation, consolidation, demerger, etc. under the provision of the act from the beginning. 

5. MANDATORY PROVISION BY COURT

The mergers amongst the companies have to be controlled by the High courts of the respective state where the registered office of both the acquired and acquiring companies are situated. Any outlines for mergers have to be approved by the court of the country as well. After the Constitution of NCLT, the matter has been shifted to NCLT from High Court.

Author:

eStartIndia Team



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