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MERGERS & AMALGAMATIONS

The Meaning

MergerWhere Assets and Liabilities of one company are transferred to another and the first company loses its existence AmalgamationWhere two or more companies merge into a third new company and the existing cos lose their existence

The reasons

Expansion and Diversification Optimum Economic Benefit De-risking Strategy Scaling up of operation for competitive advantages Increase the Market capitalization Cost reduction by reducing overheads Increasing the efficiencies of operations Tax benefits Access foreign markets

Legal Issues

The Companies Act. 1956 The Income Tax Act Other Laws The procedure Precedents

The Companies Act

Section 391 to 394 -Arrangement -The Scheme -The Petition to the Court -Chairman appointed by Court -Meeting under Courts supervision -Voting by Poll (Postal Ballot!?) -Notice to Central Govt. -No objection from Official liquidator

The Income tax Act

Carry forward and set off of accumulated loss and unabsorbed Depreciation: - Sec 72A of the Income Tax Act - Available to Industrial Undertakings

(Manufacture,Computer, Power, Mining construction Ship,Aircraft, rail)

- 3/4th Value of Assets to be held for 5 years - Continue the business of transferor Co. for 5 Years

The Income Tax Act


Transferor company need not pay any capital gains {Sec 47 (vi)} Amortization cost can continue in the transferee Co. Carry forward of losses/ depreciation in the transferor company Issue of Shares to the shareholders of shares to the transferor Co. does not attract capital gains {Not a transfer SEC 47(vii)}