Mergers and Acquisitions

Mergers and acquisitions are two key processes that lead two different corporate entities to combine their resources and form one entity to have better standing in market. The two terms though results in combining the assets and liabilities of two corporate houses to form one company, however, the two terms differ in their meaning as well as the process to be followed for them.

The term ‘merger’ has not defined anywhere under the Companies Act, 1956 or under Income Tax Act, 1961. However, the Companies Act, 2013 without strictly defining the term explains the concept. A ‘merger’ is a combination of two or more entities into one entity. This results into not just the accumulation of assets and liabilities of the two distinct entities, but also organization of such entity into one business. In mergers the less important company loses its identity and becomes part of the more important corporation, which retains its identity. It may involve absorption or consolidation. Similarly the term ‘amalgamation’ has not been defined under the Companies act, 2013 but the Income Tax Act, 1962, under section 2(1B) defines amalgamation as the merger of one or more companies with another company or the merger of two or more companies to form one company. The company or companies which so merge being referred to as the amalgamating company or companies and the company with which they merge or which is formed as a result of the merger, as the amalgamated company. The result of the amalgamation is that-

·        all the property of the amalgamating company or companies immediately before the amalgamation becomes the property of the amalgamated company by virtue of the amalgamation;

·        all the liabilities of the amalgamating company or companies immediately before the amalgamation become the liabilities of the amalgamated company by virtue of the amalgamation;

·        shareholders holding not less than three-fourths in value of the shares in the amalgamating company or companies become shareholders of the amalgamated company by virtue of the amalgamation,

otherwise than as a result of the acquisition of the property of one company by another company pursuant to the purchase of such property by the other company or as a result of the distribution of such property to the other company after the winding up of the first-mentioned company.

Further, the Companies Act, 1956 under sections 390 to 394 and Companies Act, 2013 under sections 230 to 234, deal with the schemes of arrangement or compromise between a company, its shareholders and/or its creditors.

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