This article talks about what is mergers and acquisitions and the laws and regulations under it. The need to improve the corporate sector of the Indian economy has seen various companies coming together to build a greater business front or a dwindling company has been taken over by a more vibrant company in order to ensure effective service and maximize profit.
These events in the corporate sector of India is simply known as the corporate concept of mergers and acquisitions.
this study will go on to briefly render a definition of the concept of merger and acquisition, highlight the laws governing this corporate cum business arrangement and finally make reference to some business undertakings in India which has witnessed merger and acquisition.
What is a Merger and Acquisition?
A merger is a business cum corporate arrangement where two or more corporate organizations involved in similar business come together to become a new business under a new name or identity.
Acquisition, on the other hand, refers to a business cum corporate arrangement where a smaller business is bought by a bigger company. Where the smaller business or company is not fully absorbed by the bigger company, the acquired company may continue to operate as a subsidiary of the bigger company that acquired it.
There are some transactions which by their very nature amounts to merger or acquisition. These transactions include:
This is a form of acquisition in its lowest terms. In this case, the acquiring company buys the majority share in the acquired firm and does not in any way change its name or its legal structure.
In this arrangement, a new company is created. The shareholders will vote in support of the consolidation before it will take effect. In view of the approval of the shareholders their existing shares in the companies under the consolidation will be converted to ordinary or equity shares in the new company.
In this case, one company offers directly to the shareholders to purchase the outstanding stock of the other firm, at a specific price. The acquiring company may continue to exist as a separate entity but in most cases or where there is no objection, it crystallizes to a merger.
Acquisition of Assets
This is very common during bankruptcy proceedings. In this form of merger and acquisition, the assets of the bankrupt company is acquired by a thriving company subject to the approval of the shareholders.
In a management acquisition, the company’s executives purchase a controlling stake in another company thereby making the said company a privately owned company.
What are the laws which govern Merger and Acquisition in India?
The principal enactments and regulatory authorities of merger and acquisition in India Include:
- The Companies Act of 2013: This is the cardinal enactment which governs all the activities of companies in India.
- The Foreign Exchange Management Act of 1999: Through inflow of foreign exchange where there is a Foreign investor/company in the merger and acquisition, the provisions of the Foreign Exchange Management Act and
- Foreign Direct Investment Policy as issued through the Department of Industrial Policy and Promotion by the Central Government of India will apply in this regard.
- The Securities and Exchange Board of India through the administration of Substantial Acquisition of Shares and Takeovers Regulations, 2011.
- The Competition Act of 2002: The Competition Act of India as administered by the Competition Commission of India ensures that business combination such as merger and acquisition are not permitted between businesses which will occasion a great threat to the competition in the businesses in India.
- The Insolvency and Bankruptcy Code of 2016: In the event of disputes arising from business combination such as merger and acquisition the National Company Law Tribunals are constituted following the stipulation of the IBC of 2016. This entails that the IBC 2016 equally governs mergers and acquisition procedure in India.
- The Income Tax of 1961: The Tax law applies to merger and acquisition in India to ensure that participants in the Mergers are not subjected to double taxation while enforcing their compliance with the tax law.