Hi Can I know, What do you mean by Merger or Amalgamation?
A Merger can be defined as the fusion or absorption of one company by another. It may be understood as an arrangement whereby the assets of two or more companies get transferred to, or come under the control of one company (which may or may not be one of the original two companies). The Shareholders of the company whose identity have been merged are then issued shares in the capital of the new merged company in accordance with Share Exchange Ratio.
**MERGER** -“combination of two or more enterprises whereby the assets and liabilities of one are vested in the other, with the effect that the former enterprise loses its identity is called merger. -Merger refers to consolidation of two or more entities ► Involves transfer of assets and liabilities from one or more transferor companies to a transferee company ► In consideration, typically the transferee company issues shares to the shareholders of transferor company ► Consideration could be in any “form” – However, considering tax neutrality conditions the same is discharged by way of issue of shares -Basically, when two companies become one. This decision is usually mutual between both firms is merger. - **AMALGAMATION** -The combination of one or more companies into a new entity. An amalgamation is distinct from a merger because neither of the combining companies survives as a legal entity. Rather, a completely new entity is formed to house the combined assets and liabilities of both companies. -combination of two corporate entities where the assets and liabilities of both are vested in a third entity, with the effect that both former entities lose their identities to form a new entity” **Terms merger and amalgamation appear synonymous, there is a difference between two – All amalgamations are necessarily merger, but all mergers may not necessarily be amalgamation**
Merger and amalgamation (‘M&A’) deals are increasing in India. Increase in competition has made organizations merger themselves to reap the benefits of a large-sized company. To understand this article, first one need to know the terms – merger, amalgamation, transferor company and transferee company. The term merger and amalgamation has not been defined under the Act. M&A is often known to be a single terminology. However, there is a thin difference between the two. According to dictionary meaning, ‘Merger’ is the fusion of two or more enterprises, whereby the identity of one or more is lost resulting in a single enterprise whereas ‘Amalgamation’ signifies the blending of two or more undertaking into one undertaking, blending enterprises loses its identity forming themselves into a separate legal identity. There may be amalgamation by the transfer of two or more undertaking to a new or existing company. ‘Transferor company’ means the company which is merging also known as amalgamating company in case of amalgamation and ‘transferee company’ is the company which is formed after merger or amalgamation also known as amalgamated company in case of amalgamation. Now-a-days, organizations seeking for M&A outsource this complex task to consultants which have build dedicated team of experienced professionals to provide valuable insights and innovative solutions for clients to maximize their There are numerous motives behind M&A of the company like for economies of scale, increasing the market share or for availing tax benefits. The some of the recent M&A deals that are happening or happened in market are enumerated below: Microsoft announced in September 2013 to acquire Nokia’s phone business for $ 7.2 billion. Tech Mahindra finally acquired & absorbed Satyam Mahindra in 2013 and now set its sights on becoming $5 billion company by 2015. Tata Metaliks to amalgamate with Tata Steel as per business line news on 11 April, 2013. Board of directors of both the companies had approved amalgamation w.e.f April 1, 2013. Several provisions in various Acts deals with M&A. The same are enumerated as follows: Companies Act, 2013 Companies Bill, 2013 has received presidential assent on 30 August, 2013. With this move, India has got a new company law i.e. Companies Act, 2013 that has replaced the erstwhile Companies Act, 1956. The new Act has different provisions in relation to different types of restructuring processes as follow: Compromise or Arrangements under Section 230 & 231 of the Act. Amalgamation including demergers falls within section 232 of the Act. Amalgamation of small companies within section 233 of the Act. Amalgamation of foreign companies under section 234 of the Act. Generally, memorandum of association of both the companies should be examined to check about the availability of companies power to amalgamate clause. Then, stock exchanges of both merging and merged company should be informed about the merger proposal. Draft merger proposal to be approved by board of directors, once the same is approved by respective boards, each company shall make an application to the high court of the state in which registered office is situated in Form No. 36 so that companies can follow the further procedure as per section 230 to 234 of the Companies Act, 2013 (earlier section 390 to section 396A of the Companies Act, 1956). Some of key highlights of Companies Act, 2013 impacting on merger and amalgamation are as follows: Creation of treasury shares i.e. holding the share in its own name or in the name of the trust, whether on its own behalf or on behalf of any of its subsidiary or associated company no longer permissible. Objections to the scheme can be raised only by shareholders holding at least 10% stake or creditors holding at least 5% of total outstanding debts as per the latest audited financial statements thereby avoiding unnecessary delays. Regulators to make representation within 30 days regarding scheme, else deemed ‘no objections’. No approval of Tribunal is required in case of merger between holding company and its 100% subsidiary or merger between small companies (based on prescribed capital/turnover). Merger of Indian company into foreign company located in certain jurisdictions allowed. Shareholders would have an option to vote for the scheme through postal ballot, in addition to voting physically at a meeting. Accounting standard (‘AS’)-14 AS-14 issued by ICAI deals with two types of amalgamation-amalgamation in the nature of merger and amalgamation in the name of purchase. Amalgamation in the nature of merger: The scheme will be considered as case of merger if all of the following conditions are satisfied: 1) At least 90% of the equity shareholders of transferor company should agree to become equity shareholder of transferee company. 2) All assets and liabilities of transferor company should become assets and liabilities of transferee company which should be recorded at the same book value as in the case of transferee company. 3) Book value can be altered at the time of recording assets and liabilities in the transferee company to confirm the same accounting policies as followed by the transferee company. 4) Transferee company should continue with the same old business that of transferor company. Amalgamation in nature of purchase: Amalgamation in nature of purchase means amalgamation which does not satisfy any one or more of the conditions mentioned in case of merger. Income Tax Act, 1961 does not recognize amalgamation in nature of purchase for tax purpose. As far as disclosure requirements are concerned, name of amalgamated company, effective amalgamation date, consideration and treatment of difference, if any, between considerations received and value of net assets received need to be disclosed. Income Tax Act, 1961 According to section 2(1B) of the Act, amalgamation means merger of one or more companies with another company or merger of two or more companies to form one company in such manner that All the property of the amalgamating company immediately before the amalgamation becomes the property of the amalgamated company by virtue of amalgamation. All the liabilities of the amalgamating company immediately before the amalgamation become the liabilities of the amalgamated company by virtue of amalgamation. Shareholders holding not less than ¾ in value of shares in the amalgamating company or companies (other than shares already held therein immediately before amalgamation by or by a nominee for, the amalgamated company or its subsidiary) becomes shareholders of the amalgamated company by virtue of the amalgamation. Under section 47(vi) of the Act, transfer of capital asset by the amalgamating company to the Indian amalgamated company shall not be regarded as transfer for the purpose of capital gain. As per section 47(via) of the Act, in case of amalgamation of foreign companies, transfer of shares held in an Indian company by amalgamating foreign company to the amalgamated foreign company is exempt from tax if all of the following conditions are satisfied: Al least 25% of the shareholders of the amalgamating foreign company continue to remain shareholders of the amalgamated foreign company. Such transfer does not attract tax on capital gains in the country in which the amalgamating foreign company is incorporated. According to section 47(viaa) of the Act, in case of amalgamation of banking company with banking institution, capital gain arising from transfer of capital asset by banking company to banking institution is exempt from tax as such transfer will not be regarded as transfer for the purpose of capital gain. As per section 35DD of the Act, expenditure incurred by Indian company in connection with amalgamation is allowed to be written off in 5 successive years, beginning with previous year in which amalgamation takes place. Section 72A of the Act deals with carry forward and set off of accumulated losses and unabsorbed depreciation of the amalgamating company. However, benefits in respect of the same shall be available only if the following conditions are satisfied: 1) There should be an amalgamation of (a) company owning an industrial undertaking or ship or hotel with another company or (b) banking company referred in section 5(c) of the Banking Regulation Act, 1949 with specified bank or (c) one or more public sector company or companies engaged in the business of operation of aircraft with one or more public sector company or companies engaged in similar business. 2) The amalgamated company should be an Indian company. 3) The amalgamating company should be engaged in the business, in which the accumulated loss occurred or depreciation remains unabsorbed for 3 years or more. 4) The amalgamating company should held continuously as on the date of amalgamation at least ¾ of the book value of the fixed assets held by it two years prior to the date of amalgamation. 5) The amalgamated company continues the business of the amalgamating company for a minimum period of 5 years from the date of amalgamation. 6) The amalgamated company fulfills such other conditions as may be prescribed to ensure the revival of business of the amalgamating company or to ensure that the amalgamation is for genuine business purpose. Section 35AB(3) of the Act states that in case of amalgamation, deduction shall be allowed to amalgamated company in respect of the residual period in the same manner as would have been allowable to the amalgamating company. Section 35ABB(6) of the Act, where the amalgamating company sells or transfer license to the amalgamated company, the provisions will continue to apply to the amalgamated company as if transfer has not taken place. Section 35DDA(2) of the Act states that in case of amalgamation of Indian company, deduction shall be allowed to the extent of unexpired period in the same manner as would have been allowable to the amalgamating company. A per section 33A(5) of the Act, where in the scheme of amalgamation, the amalgamating company sell or otherwise transfers any land on which development allowance has been allowed, the amalgamated company should continue to fulfill the conditions in respect of the reserve created. If any balance of development allowance is outstanding to the amalgamated company, it shall be allowed to the amalgamated company.
A **Merger** can be defined as the fusion or absorption of one company by another. It may be understood as an arrangement whereby the assets of two or more companies get transferred to, or come under the control of one company (which may or may not be one of the original two companies). The Shareholders of the company whose identity have been merged are then issued shares in the capital of the new merged company in accordance with Share Exchange Ratio. **Amalgamation** - Amalgamation is an ‘arrangement’ or ‘reconstruction’. Amalgamation is a legal process by which two or more companies are joined together to form a new entity or one or more companies are to be absorbed or blended with another and as a consequence the amalgamating company loses its existence and its shareholders become the shareholders of new company or the amalgamated company. Three Conditions for Merger to qualify as an amalgamation --------------------------------------------------------- - All the property of the amalgamating company (old) immediately before the amalgamation becomes the property of the amalgamated company (new) by virtue of amalgamation. - All the liabilities of the amalgamating company immediately before the amalgamation become the property of the amalgamated company by virtue of amalgamation. - Shareholders holding not less than three- fourth in value of the shares in the amalgamating company (other than shares already held therein immediately before the amalgamation by or by a nominee for the amalgamated company or its subsidiary) become shareholders of the amalgamated company by virtue of the amalgamation.