It is often seen that a company loses all its market shares, profit-earning cards or other monetary accounts due to some unforeseen situations. To save the company from drowning or getting lost in the market, it often decides to merge or collaborate with another organization. That is what is known as a Merger in legal terms.
Two companies decide to combine together, where one of the company entirely loses its image and identity and become a part of the other organization which emerges out to be an important one is mostly known as Merging. It also includes the absorption of all the assets, equity shares, liabilities and stocks which gets transferred to the transferee company from the less critical company who is giving up. There are top mergers and acquisition law firms across the country who will help you to get through the legal procedure.
The underlying motives behind taking such a drastic decision like merging are generally because of the recurring losses incurred by the company, to save taxes, to interest more investors to invest in the deals because to renowned companies have merged together. It is also because of increasing the strength of the company to get a grip over the broader market and get an increased market share. Mergers and acquisition lawyers will also provide you with ample other reasons after going through your company’s current status as to why you can merge with other companies.
While deciding to merge, you have to keep in mind a few legal consideration in the mergers and acquisition’s process which are as follows-
- If you are following the Companies Act,1956, you are required to go through a fixed procedure. At first, either of the company has to file a petition regarding the sanction of arrangements to be made for the compromise pact. You have to produce all the papers required during the time of the petition. After the concerned authority is satisfied with the file, a meeting will be called where the presence of the members, class of members, creditors and their class and the shareholders are mandatory. The chance of arranging for this meeting increases if you file your case under section 391. For further processing, all the members of the boards of both the companies have to agree with the terms of the scheme. While the company has to give a list of all his existing dues and assets in front of the authority before the meeting is called, it has to be made sure that both the companies agree that the interest of the shareholders will not be at stake. After all the required formalities, the concerned authorities will be receiving the certificate of the order, if the scheme is sanctioned.
- According to The Companies Act, 2002, if you own an Indian company with a turnover of Rs 3000 crores, you are restricted to take over another Indian company without prior notifications to the competition commission and their approval. But mergers and acquisition lawyers will tell you that if your company is established in a foreign land and you have a turnover of 4500 crores according to Indian currency, you are free to take over any sovereign country without prior notices. But section 6 of the act strictly restricts the combination of companies which can pose a severe threat to the competition of the national market.
- If you understand the legal consideration in the mergers and acquisition process carefully, you will see that Merging is not acknowledged under the Indian Income Tax Act, 1961 but is stated as the amalgamation. It encourages the restructuring of the company, and therefore the mergers and the demergers have been given a unique benefit in the Income Tax Act. The law states that business restructuring taxes are kept neutral. The sole reason behind this is to instigate internal liberalization.
- You have to consult the top mergers and acquisition law firms to get your scheme of merging be sanctioned by the court. The law empowers the high court of the respective state where both the companies are registered with to give permission to merge and accept their petition of acquisition. But you are supposed to get a green signal only if the court finds your petition fair and not harming the interest of the national market or any of the shareholders related to both the companies.
- Lastly, the process that you have to go through for merging with another company is- the objectives and the clauses are to be checked thoroughly by the directors. The stocks and shares are to be listed and a draft petition to be drawn and approved by the companies. Once you file a suit in the court, orders are issued. You have to transfer all your assets, liabilities and issue the shares to the other company.
Amy Jones is a professional legal expert working with Ahlawat & Associates-top law firms in India, with a long background of taking up several types of cases, she is able to provide the right legal consultation to their clients professionally and help them to solve their complicated legal problems. She keeps writing about different legal matters.