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TMI BlogModes of Corporate Restructuring and AcquisitionsX X X X Extracts X X X X X X X X Extracts X X X X ..... Modes of Corporate Restructuring and Acquisitions X X X X Extracts X X X X X X X X Extracts X X X X ..... ed under Sections 230-232 of the Companies Act, 2013. * Regulatory Requirement: Mandatory approval of the National Company Law Tribunal (NCLT). * Objective: Consolidation of businesses, economies of scale, or acquisition of market share. (b) Demerger A demerger entails the segregation of one or more business undertakings of a company into another company, either newly formed or pre-existing. This is commonly adopted to separate unrelated or distinct business verticals. * Legal Basis: Also governed under Sections 230-232 of the Companies Act, 2013. * NCLT Approval: Required, as it constitutes a compromise or arrangement between the company and its stakeholders. * Outcome: The transferring company continues to exist, while the und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertaking is transferred on a going concern basis. (c) Share Purchase A share purchase is a method of acquiring control over a target company by purchasing its shares directly from existing shareholders. This results in a change in shareholding but does not affect the existence or operations of the target entity. * Legal Simplicity: Does not require NCLT approval. * Regulatory Oversight: Subject to SEBI regulations (if listed), and reporting under the Companies Act, FEMA (for cross-border transactions), and the Competition Act, where applicable. * Flexibility: Common in private equity and strategic acquisitions. (d) Slump Sale A slump sale involves the transfer of an undertaking as a going concern for a lump sum consideration, with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out assigning values to individual assets or liabilities. * Legal Basis: Defined under Section 2(42C) of the Income Tax Act, 1961. * Taxation: Treated as a transfer for capital gains purposes; requires careful valuation and tax planning. * Advantages: Simple execution through a Business Transfer Agreement; no court approval required. (e) Asset Sale Under an asset sale, specific assets of a company (such as land, plant, machinery, or intellectual property) are individually sold to a purchaser. Unlike a slump sale, it does not transfer the business as a going concern. * Applicability: Often used to dispose of non-core or redundant assets. * Contractual Nature: Governed by the terms of the asset sale agreement and general contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law. * Valuation: Each asset is separately valued and taxed accordingly. Here's a comparative chart summarizing key aspects of various corporate restructuring methods: 🧾 Comparative Chart: Corporate Restructuring Methods Particulars Amalgamation / Merger Demerger Share Purchase Slump Sale Asset Sale Definition Combining two or more companies into one entity Transfer of one or more undertakings into another entity Purchase of shares of the target company Transfer of an undertaking as a going concern Sale of specific assets individually Governing Law Companies Act, 2013 (Sec. 230-232) Companies Act, 2013 (Sec. 230-232) Companies Act, SEBI, FEMA, Competition Act (as applicable) Income Tax Act, 1961 (Sec. 2(42C) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), Contract Law Contract Law, Companies Act, Tax Laws NCLT Approval Required ✔ Yes ✔ Yes ✘ No ✘ No ✘ No Resulting Entity One merged entity (or absorption into existing company) Demerged entity continues; receiving company gains undertaking No change in legal entity of target Business transferred; seller company continues Seller retains remaining business Continuity of Business ✔ Generally continues ✔ Generally continues ✔ Target continues operations ✔ Business continues with buyer ✘ Only assets transferred, not business Consideration Form Shares / Cash / Combination Shares / Cash Cash or shares to shareholders Lump sum amount Based on asset value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Implications Tax neutral if conditions under Sec. 47 (IT Act) are met Tax neutral if Sec. 47(vi) or (vib) conditions are met Capital gains on transfer of shares Capital gains taxed under Slump Sale rules Taxed individually per asset transferred Stamp Duty ✔ Applicable ✔ Applicable ✔ Applicable on share transfer (depends on mode) ✔ May apply based on asset class ✔ Asset-wise applicable Due Diligence Required ✔ Extensive ✔ Extensive ✔ Moderate to Extensive ✔ Moderate ✔ Selective Speed of Execution Slow (due to court approval) Slow (due to court approval) Fast Moderate Fast Regulatory Approvals NCLT, ROC, SEBI (if listed), CCI (if applicable) N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CLT, ROC, SEBI, CCI (if applicable) SEBI, FEMA, CCI (as applicable) CCI, if thresholds met As per sector or value involved 📌 Quick Summary: * Use Amalgamation/Demerger: For long-term strategic consolidation or vertical separation. * Use Share Purchase: For acquiring control quickly without affecting the legal entity. * Use Slump Sale: When transferring entire business units with operational continuity. * Use Asset Sale: For selective asset disposal or non-core business divestment. Conclusion The choice of restructuring mechanism depends on several factors including the strategic objectives, tax implications, legal formalities, and regulatory constraints. While mergers and demergers require court approval and involve co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mprehensive compliance, share and asset purchases offer quicker, more flexible alternatives. Proper legal and financial due diligence is essential to select and execute the most appropriate route. 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