| CONTENTS1) MERGER● Who gives the approval to merge companies?● Types of mergers● Why do companies merge?● Can an Indian company merge with a foreigncompany?2) DEMERGER● Types of demerger● Why do companies demerge?3) CONCLUSION MERGER:Merger means, joining two or more companies together, this act is simply called merger. When we talk about in business terms what is merger?Basically, merger is an act in which more than two companies merge/united with each other to form or to make a new single company or a single basis. A company merges with another company for so many reasons, for so many benefits, because when one company merges with another company, its powers, their benefits will increase accordingly. Every company needs growth in its sector. To accelerate company growth two or more companies come together, and merge together to make a new single company. For example- Vodafone and Idea mobile phone companies. Merger is also called Amalgamation. Under THE INCOME TAX ACT, 1961(ITA) Amalgamation is defined as the merger of one or more entities with another company, or the merger of two or more entities forming one company.WHO GIVES THE APPROVAL TO MERGE COMPANIES?In India, The NCLT (NATIONAL COMPANY LAW TRIBUNAL) has to mandate approval of the merger. It means the company needs NCLT approval for the merging process.For ex: X and B are two different companies or different firms but they want to merge with one another to form a new company Z as a new and independent company.TYPES OF MERGERS:1. Horizontal Merger: When two competitors merged with each other, it is called a horizontal merger. It means when both with each other to promote growth, to increase market share, etc. E.g. Lipton India, Vodafone and Idea, and Maruti and Suzuki.2. Vertical Merger: A merger where two companies may not compete with each other. For example- a company has the business of mobile phones, and a company has the business of parts of mobile phones, both companies have different businesses but have the same industry supply chain.3. Product extension Merger: A merger between the same companies in the market with the aim of expanding market reach.4. Congeneric Merger: It means two same companies in the same industry or in the same market but companies that don’t give the same product merge with each other to increase their marketshare.WHY DO COMPANIES MERGE?There are so many reasons for a company to merge with another company. Mergers are done to gain, to increase market share, to increase the company economy, to acquire or to gain new knowledge or technologies because every company has its own technology, to create a synergy, for more resources, to diversification in the company business, to remove or two eliminate the competition in the market, for good investment companies merge with each another.CAN THE INDIAN COMPANY BE MERGED WITH THE FOREIGN COMPANY?Only foreign companies can be merged with Indian companies. It means an Indian company can not merge with a foreign company but a foreign company can. A Foreign Company can be a transferor company but can not be a transferee company. (JINDAL SAW LTD. ALLAHABAD HIGH COURT).DEMERGER:If a merger is like a marriage then a demerger is like a divorce. Demerger is the opposite of a merger in simple words. Demerger means where a business or a company splits up or is broken into parts, to work alone or to be sold. A company or a business is split up into separate units. This usually happens when the profits of a successful company get affected by the other merged company. It means when a company profits, company share gets affected or gets sucked by the other company which results in loss, in such cases, companies demerge Popular demergers in India are Vedanta Limited, Piramal Enterprises, Dhampur sugar mills, etc. SECTION 2(19AA) OF THE INCOME TAX ACT defines demerger, ‘demerger’ in relation to companies means the transfer, pursuant to a scheme of arrangement under section 391 to 394 of the Companies Act, 1956 by a demerged company of its one or more undertakings to the resulting company in such a manner that,1. All the property of the undertaking, being transferred by the demerged company, immediately before the demerger, becomes the property of the resulting company by virtue of demerger.TYPES OF DEMERGER:1. Spin-off: It means when a parent company separates from another company and once they are spun off, both companies act as a separate and individual companies. Spin-off results in the creation of an independent company.2. Split-off: It is a type of business plan in which a company splits up into two or more independent companies by which the parent company comes to an end.WHY DO COMPANIES DEMERGE?A company demerges with another company because of so many reasons. Generally, companies demerge because they want to focus on companies core operations, to raise capital, one main benefit or advantage of the demerger is to provide so many benefits for the shareholders. After demergers, companies have their own business plans and strategies for business investment. Demergers promote expansion for the companies.The Supreme Court in Miheer H. Mafatlal v. Mafatlal Industries Ltd,Court laid down the following principles:. The Statutory provisions should be complied with.. The class who attended the meeting must fairly represent all the stakeholders and they should act in a bona fide manner.. The arrangement should reasonable..The Scheme should not be contrary to the public interest or any other law.CONCLUSION:We conclude that mergers and demergers are like north and south poles, they are opposite to each other. Merging and demerging companies leads to growth in their business. There are many advantages as well as disadvantages to merging and demerging a company. Merging and demerging a company can be done in different ways. | |
