Question 1

What is the difference between a merger and an amalgamation?

Accepted Answer

While both terms are often used interchangeably, in a merger, one company absorbs another company, with the absorbed company losing its identity. The acquiring company retains its identity and acquires all assets and liabilities of the target company. In an amalgamation, two or more companies combine to form an entirely new entity, and all amalgamating companies dissolve without winding up.

Question 2

What approvals are required for a merger or amalgamation in India?

Accepted Answer

A merger or amalgamation in India typically requires: board approval from all involved companies, shareholder approval (usually by special resolution with 75% majority), approval from the National Company Law Tribunal (NCLT), and possibly approvals from other regulatory bodies such as SEBI (for listed companies), RBI (if foreign exchange is involved), Competition Commission of India (for large mergers), and industry-specific regulators.

Question 3

What is a scheme of arrangement in a merger process?

Accepted Answer

A scheme of arrangement is a formal document that outlines all aspects of the proposed merger or amalgamation. It includes details on the transfer of assets and liabilities, share exchange ratios, treatment of employees, accounting treatment, and various other terms and conditions of the restructuring. This document requires approval from shareholders, creditors, and the NCLT to become effective.

Question 4

What are the tax implications of a merger or amalgamation?

Accepted Answer

Tax implications of mergers and amalgamations in India are governed by the Income Tax Act, 1961. Under Section 47, certain mergers can qualify as tax-neutral if specific conditions are met. Benefits may include exemption from capital gains tax, carry forward of accumulated losses and unabsorbed depreciation, and no taxability for shareholders receiving shares in the amalgamated company. Additionally, stamp duty implications vary by state.

Question 5

How long does the merger process typically take in India?

Accepted Answer

The timeline for completing a merger in India typically ranges from 6 to 12 months, depending on complexity. This includes 1-2 months for due diligence and preparation, 1-2 months for internal approvals, 3-6 months for the NCLT process, and 1-2 months for post-approval compliance and integration. Complex cases involving multiple regulators or cross-border elements may take longer.

Mergers, Amalgamations & Corporate Restructuring

Key Aspects of Corporate Restructuring