RULES OF MERGER AND DEMERGER
- In the corporate world, merger and demerger have become universal practices for securing survival, growth, expansion and globalization of enterprise and achieving multitude of objectives. Merger is the fusion of two or more existing companies. On the other hand, demerger signifies a movement in the company just opposite to merger. `Demerger’ is also used to describe spinning off of an “undertaking” of a Corporate entity. The concept of `Merger’, `Demerger’ & `Acquisition’ are arising out of the `Arrangement’ under Sections 391-394 of the Companies Act, 1956. Merger and Demerger are natural corollary of globalization.
- To incorporate the spirit of Corporate World and to imbibe the consolidation creed, the Council used the term ‘merger’ and ‘amalgamation’ of CA firms. The Council in its 198th Meeting held from 25th to 27th February, 1999 and in 223rd Meeting held from 2nd to 5th February, 2002 considered the Seniority and Mergers of the firm and implications of the decisions.
- In order to have an orderly and sustainable growth of the CA firms, it is desirable that the coming together of the firms begins with networking and then matures to mergers. Networking will enable the firms to develop working relationships with each other. However, it is not to suggest that there cannot be mergers without networking.
- The mergers should be effected to develop core competencies and to render professional services of a larger range spread over bigger geographical area. A merged big entity will always be superior to a network arrangement.
The Partnership Act has not prescribed merger & demerger of partnerships therefore, these rules were introduced .These rules are called Rules of Merger & Demerger amongst the Firms registered with The Institute of Chartered Accountants of India.
- To effectuate merger, a merger agreement in Form ‘E’ (enclosed) is to be filed with the Institute within 30 days from the date of the agreement. The re-constitution agreement/partnership deed shall be filed with the Registrar of Firms.
- Upon the merger of the firms, the Institute will freeze the names of the merging firms and shall not allot the same names to any other firm.
- The merger has to precede the demerger. The merger agreement itself shall contain the terms and conditions for demerger. Therefore no concurrence/acceptance is required from the continuing partners. The merger agreement shall stipulate that in case 75% or more of the continuing partners of one of the erstwhile firm(s) are willing to demerge then they can do so after giving due notice in Form ‘F’ (enclosed) to the other partners and to the Institute.
- In case 75% or more of the continuing partners of one of the erstwhile merging firm have demerged after giving due notice to the other partners, then in such case, the merger shall come to an end and if the remaining erstwhile merging firms/partners of the erstwhile merged firm decided to continue, then they should enter into a fresh Merger/Partnership Agreement.
- The Demerged Firm is entitled to practice in its old trade name, which existed at the time of merger.
- The Constitution Certificate issued by the Institute to the demerged firm shall state the original date of establishment, the date of its merger and the date of the demerger. For the purpose of computing the seniority of the firm, the total period will be reckoned from the original date of establishment.
- The demerger can be demanded within a period of 5 years from the date of merger.
RULES OF MERGER AND DEMERGER
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