DEMERGER:--- IN simpler terms demerger is the division of the parent company into more than one number of companies. The new companies need not be the subsidiaries of the parent company after the demerger. It is also a form of corporate restructuring under which the parent company gets segregated into more than one number of companies. It is the converse of merger , acquisition. takeover on the other hand means forcefully acquiring a smaller company by a larger company. in demerger companies accumulated losses gets divided between the segregating companies. It is always a kind of corporate restructuring where in the newly formed companies perform better than the parent company.it is also done to raise capital. reasons for demerger:----- (i) 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 the demerger; (ii) all the liabilities relatable to the undertaking, being transferred by the demerged company, immediately before the demerger, become the liabilities of the resulting company by virtue of the demerger; (iii) the property and the liabilities of the undertaking or undertakings being transferred by the demerged company are transferred at values appearing in its books of account immediately before the demerger; (iv) the resulting company issues, in consideration of the demerger, its shares to the shareholders of the demerged company on a proportionate basis; (v) the shareholders holding not less than three-fourths in value of the shares in the demerged company (other than shares already held therein immediately before the demerger, or by a nominee for, the resulting company or, its subsidiary) become share-holders of the resulting company or companies by virtue of the demerger, otherwise than as a result of the acquisition of the property or assets of the demerged company or any undertaking thereof by the resulting company; (vi) the transfer of the undertaking is on a going concern basis; (vii) the demerger is in accordance with the conditions, if any, notified under sub-section (5) of section 72A by the Central Government in this behalf. this way demerger can prevent takeover.
Demerger of a company takes place when: --------------------------------------- 1. De-merger is essentially a scheme of arrangement under Section 391 to 394 of the Companies Act, 1956 requiring approval by; i. majority of shareholders holding shares representing three-fourths value in meeting convened for the purpose, and; ii. sanction of High Court. 2. De-merger involves ‘transfer’ of one or more ‘undertakings’. 3. The transfer of ‘undertakings’ is by the demerged company, which is otherwise known as transferor company. The company to which the undertaking is transferred is known as resulting company which is otherwise known as ‘transferee company’. Existing provisions relating to amalgamations of companies were rationalised and new ones relating to demerger of companies, or sale/transfer of business as a going concern through slump sales were introduced. **In demergers, tax benefits and concessions available to any undertaking are made available to the undertaking on its transfer to the resulting company.** The condition regarding continuity of the same business for the allowability of loss to an assessee under Section 72 of the Income-Tax Act, 1961 was dispensed with. The accumulated losses and unabsorbed depreciation in a demerger is allowed to be carried forward by the resulting company if these are directly relatable to the undertaking proposed to be transferred. Where it is not possible to relate these to the undertaking, such losses and depreciation will be apportioned between the demerged company and the resulting company in proportion of the assets coming to the share of each as a result of demerger. Tax benefit to such business reorganisation is limited to transfer of specific assets, which would amount to sale of assets and not business reorganisation.