Description
Merger, Types of Merger, Introduction of Acquisition, Types of Acquisition, Difference between Merger & Acquisition, Drivers for M & A, Process of merger and acquisition, Scheme of Arrangement, tax governing M&A.
• Mna •Merchant •Buyback •Due diligence •Valuation •Overview
? ? ? ? ? ? ? ? ? ?
Introduction of Merger Types of Merger Introduction of Acquisition Types of Acquisition Difference between M & A Drivers for M & A Process Scheme of Arrangement Implications Case Laws
3 of
?
In common parlance it means combination of two or more commercial organizations into one.
Merging company loses its separate identity. It is fusion of two or more existing companies. All assets and liabilities of one or more Companies are transferred to another Company. Example:
• Merger of Idea and Spice Telecom
?
?
?
4 of
Before Merger
Shareholders of X
Shareholders of Y
X Ltd
Y Ltd
5 of
After Merger
Option 1 Option 2 Option 3
Shareholders of X & Y
Shareholders of X & Y
Shareholders of X & Y
X Ltd
Y Ltd
New co Z
Note- Based on the swap ratio, the shareholders of the transferor company are issued shares of transferee company
6 of
“We can’t merge again. Our letterhead already takes up the entire page.”
7 of
Vertical Merger:
Merger with suppliers or customers
Eg: Kochi Refineries Ltd Merges into Bharat Petroleum Corporation Limited
Cont…
8 of
Horizontal Merger:
? Between firms in the same
kind of business usually as competitors. ? Generally has the effect of reducing competition Countries committed to a competitive economy use Antitrust laws to prohibit such mergers.
Eg: Centurion bank of Punjab merging into HDFC Bank
Cont…
9 of
Conglomerate Merger:
Lines of business have nothing to do with one another
Eg: Indo Gulf and Birla Global Finance merging into Indian Rayon. New Co rechristened Aditya Birla Nuvo
10 of
?
?
?
Purchase of a company by another company. Acquirer more interested in assets (including intangibles) / cash flows; less interested in mutual sharing of risks and benefits with the target company. Examples:
• Tata Steel acquired Corus Group Plc.
• Hindalco acquired Novelis • Videocon acquired Daewoo Electronics Corp.
11 of
Acquisition - friendly or unfriendly
Friendly Takeovers: Acquirer's contacts target's management & proposes a deal. Target agrees and cooperates Unfriendly Takeovers: Acquiring firm makes a tender offer to target's shareholders. Meanwhile, target's management contests defensive measures
Why called unfriendly ?
Price is too low; fear to lose power, often jobs 12
of
Difference between Merger & Acquisition Merger
?
Acquisition
?
Consideration discharged by issue of shares of transferee co. Shareholders of merging co. will become shareholders of Merged co.
Consideration may be by cash or shares. Acquirer company shareholders have controlling interest.
?
?
?
Usually by negotiations.
?
May be friendly or hostile.
13 of
Drivers for Merger
?
? ? ? ? ? ?
?
Synergy of operations and economies of scale. Diversification. Capital restructuring. To increase the market share and to reduce the competition. Benefit of carry forward losses. Drop Down Effect of Global Restructuring Reduce the number of Companies in Group Backwards & Forward Integration
Cont…
14 of
?
? ? ?
?
Expansion Focus on Core Activities Curtail Competition Bail Out ‘Takeovers’ Tax Benefits
15 of
16 of
Due Diligence by parties Agreement on Appointed Date Valuation Scheme of Arrangement Approval by the Board of Directors Stock Exchange approval for listed Companies ? Meeting of Shareholders/ Creditors ? Registrar of Companies approval ? High Court approval ? Filing of High Court Order with ROC
? ? ? ? ? ?
17 of
Definitions: ? Appointed Date, ? Effective Date ? Undertaking ? Transferor Company ? Transferee Company ? Share Capital ? Transfer & Vesting of Undertaking of Transferor Company (Assets & Liabilities)
?
Cont…
18 of
? ? ?
?
? ?
?
Conduct of Business during Interim Period (by transferee) Transfer of Employees, Legal Proceedings, Contracts and Deeds Consideration(issue of shares) Accounting Treatment Modifications to the Scheme Conditions for Effecting the Scheme(approvals on which it is dependent on and effect of non-approval) Cost relating to Scheme(shared by both)
19 of
?
Clause 24 of the Listing Agreement
? Filing of the Scheme at least one month before filing ? ? ?
with the court for approval Pre and Post restructuring shareholding pattern to be intimated Filing of the notice, Explanatory Statement, etc. with the Stock Exchange Undertaking that the Scheme is in conformity with the Laws
20 of
High Court under whose jurisdiction the Registered office of the companies are situated ? Merger of WOS in the Holding Company Application by Holding Company can suffice ? Direction of convening meeting of shareholders & creditors
?
21 of
Publication of Advertisement ? Notice of the Meeting
?
? At least 21 days clear notice ? To be sent under certificate of posting ? Explanatory Statements, Scheme & Proxy Form to be
attached to the notice
?
Conducting Meeting
? Voting by polls ? Scrutinizers
Cont…
22 of
?Approval of Scheme at the Meeting
? Majority in number and ? ¾ th in Value
?
Results of the meeting to be reported to the High Court
23 of
Petition for the Approval of the Scheme ? Approval of the Regional Director ? Approval of Official Liquidator (OL) ? Appeals Against High Court’s Order - Possible
?
24 of
Order to be filed with the ROC within 30 days of receipt of the order of High Court ? Obtain RBI approval, if required
?
25 of
Payment of Stamp Duty ? Fixing Record Date for Allotment of Shares ? Arrangement for Listing of Newly Issued Shares
?
26 of
Case Laws
It is fair to use combination of three well known methods - asset value, yield value & market value
?Hindustan
Lever Employees ‘ Union Vs. HLL (1995) 83 Com. Case 30 SC
Valuation job can be entrusted to people who know the Company rather than giving to outsiders who will start from scratch
?Consolidated
Coffee V/s Arun Kumar Agrawal (1999) 21 SCL 11 (Kar) Cont…
27 of
Case Laws
(Cont.)
Exchange Ratio not disturbed by Courts unless objected and found grossly unfair
?Miheer
H. Mafatlal Vs. Mafatlal Industries (1996) 87 Com Cases 792 ?Dinesh v. Lakhani Vs. Parke-Davis (India) Ltd.. (2003) 47 SCL 80 (Bom)
Brands of a company are part of goodwill, cannot be separately valued
?Brooke
Bond Lipton India Limited (1998) 15 SCL 81 (Cal)
28 of
? Accounting ? Income
Tax ? Stamp Duty ? Sales Tax ? Excise
29 of
? ?
? ? ?
Came into effect from April 1,1995 Deals with: ? Accounting for Amalgamation & ? Treatment of any resultant Goodwill or Reserves Applicable only to company form of Organisation Does not deal with Acquisition of the whole or part of a company by another In Amalgamation, one company loses its Identity; In Acquisition, identity of companies are maintained
Cont…
30 of
Amalgamation means an amalgamation as per the provision of Companies Act, 1956 or any other law applicable to Companies, sections 391 to 394 of Companies Act, 1956 governs the provisions of amalgamation
In the nature of MERGER
In the nature of PURCHASE
31 of
?
Conditions for Amalgamation in the nature of Merger: ? All Assets & Liabilities are transferred ? At least 90% Share holders of transferor co. become share
?
?
?
holders of transferee co Consideration for Amalgamation to be discharged by issue of Equity shares Business of the transferor co. is intended to be carried on No Adjustments are intended to be made to the book value of assets and liabilities of transferor co
Cont…
32 of
?
All the above conditions should be satisfied simultaneously If any of the above conditions are not fulfilled it would be termed as Amalgamation in the nature of Purchase
?
33 of
Amalgamation in the nature of MERGER
Pooling of Interest Method
Amalgamation in the nature of PURCHASE Purchase Method
34 of
?
?
?
?
All Assets, Liabilities & Reserves of Transferor company are taken over at their existing carrying values Identity of Reserves is preserved Uniform Accounting Policy to be adopted Difference between the Consideration and Share Capital of transferor company shall be adjusted in Reserves of the Merged company
35 of
MERGER OF A LTD. INTO B LTD.
Liabilities
A Ltd
Rs.
B Ltd
Rs.
Assets
A Ltd
Rs. 23 22
B Ltd
Rs. 112 40
Equity Share Capital General Reserve Profit and Loss Balance Debenture Redemption Reserve Loans Current Liabilities Provisions Total &
40 7 -
75 Fixed Assets 65 Investments 15 Current Assets, Loans & - Advances 25 Profit and Loss Balance 52 232 Total
5
20 12 84
34
5
80
-
84
232
36 of
Assumptions
i) The share exchange ratio for the merger of A Ltd. into B Ltd. is: "For every 2 equity shares of Rs. 10 each fully paid up of A Ltd., 1 equity share of Rs. 10 each fully paid up of B Ltd."; which means that B Ltd. will issue equity share capital of Rs. 20 to the shareholders of A Ltd. 20 25
ii) Market Value of Fixed Assets of A Ltd is Rs iii) Market Value of Investments of A Ltd is Rs
37 of
a) POOLING OF INTEREST METHOD (AT BOOK VALUE)
Liabilities Equity Share Capital [See Assumption i)] B Ltd Rs. 95 Fixed Assets (23+112) Assets B Ltd Rs. 135
General Reserve (7+65)
Profit and Loss A/c (-5+15) Debenture Redemption Reserve (5+0) Capital Reserve Loans (20+25) Current Liabilities and Provisions (12+52) Total
72 Investments (22+40)
10 Current Assets, Loans & Advances 5 (34+80) 20 45 64 311 Total
62
114
311
38 of
?
For Amalgamation under Pooling of Interest Method ? Exchange ratio, description and number of shares ? Difference between consideration and net identifiable assets acquired and treatment of the same
39 of
?
? ?
?
Assets taken either at existing carrying value or fair value, value can also be assigned to non existent assets/liabilities The identity of the reserves, other than the statutory reserves is not preserved In case of Statutory Reserves, ”Amalgamation Adjustment a/c” of a Corresponding amount needs to be created which shall be reversed when separate identity of statutory reserve is no longer required Difference between Net Assets and Consideration: ? If Positive – Capital Reserve ? If Negative - Goodwill
40 of
b) PURCHASE METHOD (AT MARKET VALUES)
Liabilities
Equity Share Capital Assumption i)] General Reserve Profit and Loss Balance Debenture Redemption Reserve (DRR) (5+0) Capital Reserve (Bal. Fig) [See
B Ltd
Rs.
Assets
B Ltd
Rs. 132 65
95 Fixed Assets (20+112) 65 Investments (25+40) 15 Current Assets, Loans & 5 Advances (34+80) 27 Amalgamation Adjustment 45 a/c (Created against DRR) 64 316 Total
114
Loans (20+25)
Current Liabilities and Provisions (12+52) Total
5
316
41 of
? For
Amalgamation under Purchase Method
for amalgamation and its
? Consideration
description ? Difference between consideration and net identifiable assets acquired and treatment thereof including the period of amortisation of any goodwill arising on amalgamation.
42 of
For all Amalgamations
? Name and general nature of the companies ? Effective date of amalgamation ? Method of accounting used ? Particulars of the scheme sanctioned under a
statute
43 of
Special treatment for Restructuring under Income Tax Act. Salient Features are: ? Definitions/ Qualifying Conditions ? Capital Gains ? Carry Forward & Set-off of Losses ? Others
Cont…
44 of
Income Tax
? Definition
(Cont.)
of Amalgamation / Merger – Section
2(1B)
? All the properties and liabilities to be transferred
? Shareholders holding not less than 75% of value
of shares to become shareholders of Transferee Co.
Cont…
45 of
Income Tax
? Capital
(Cont.)
Gain Tax – Sec 47(vi) & 47(vii)
Not a transfer - no liability for capital gains tax in the hands of the Transferor Co. as well as for shareholders
? Cost
of acquisition of shares of Transferee Co. in the hands of Shareholders
COA of shares of Transferor Co. = COA of shares of Transferee Co.
Cont…
46 of
Income Tax
?
(Cont.)
Depreciation on the Assets being transferred ? Transferee Company will be entitled to Depreciation on the written down value (WDV) of the block of assets transferred which will be the same as in the case of Transferor Company had it continued to hold such assets ? Depreciation to transferor company and transferee company in the year of merger shall be apportioned in the ratio of the number of days for which the assets were used.
Cont…
47 of
Income Tax
?
?
(Cont.)
? ?
Carry Forward & Set-off Losses of Transferor Co – Sec 72A Qualifying Companies ? Companies Owning • Industrial Undertaking or • Ship or Hotel ? Banking Companies ? Public Sector Companies engaged in business of operation of aircraft Business Losses – 8 Years (Fresh Life) Unabsorbed Depreciation – Unlimited Period
Cont…
48 of
Income Tax
Conditions ? Transferor Company
?
(Cont.)
? Engaged in Business for at least three years to
which the loss or Unabsorbed depreciation relates ? Holds ¾ th the book value of fixed assets held by it 2 years prior to the date of merger
Cont…
49 of
Income Tax
Transferee company
(Cont.)
? Holds for at least 5 years ¾ th of book value of fixed
assets of transferor Co. ? Continues business of transferor Co. for at least 5 years
Rule 9 C
? Achieve 50% level of installed production capacity of undertaking of transferor co. before 4 years, and continue till 5th year
Cont…
50 of
Income Tax
? Closely
(Cont.)
held Co.- Section 79
? Carry
forward Business loss would lapse if shareholding pattern changes by more than 49 % ? Applies only to Business loss and not to unabsorbed depreciation ? Section 79 overrides Section 72A
51 of
?
Stamp Duty Payable in the states of Rajasthan, Maharashtra, Gujarat & Karnataka is on Court Order Other States - Duty Payable on Immovable Properties & Movable Properties as per applicable rates
?
Cont…
52 of
Stamp Duty
? Rates
(Cont.)
for Maharashtra
• Schedule 1 to the Bombay Stamp Act, 1958 under
Article 25(2)(da) relating to Conveyance
High Court order under section 394 of the Companies Act, in respect of amalgamation or reconstruction of companies 10% of market value of shares allotted in exchange and consideration if any paid but not exceeding the higher of: (i) 5% of Market Value of the immovable property in Maharashtra or (ii) 0.7% of Market Value of shares allotted in exchange and consideration if any paid
53 of
Market Capital of XYZ ltd is Rs 1,000 lacs, Where as Immovable property transferred amounts to Rs 100 lacs. In the above case Stamp Duty will be calculated as follows: Market value of Shares Immovable Property 1000 10% of market Value of Shares = 100 lacs 100 Not exceeding higher of: - 5% of Market Value of Immovable Property = 5 lacs - 0.7% of market value of Shares = 7 lacs Therefore the Stamp duty payable will be Rs. 7 Lacs
54 of
? On
Transfer of Business
? Sales tax payable is on sale of goods. ? ‘Business’ does not fall under the purview of ‘goods’
under the Sales tax Act. ? Transfer of business on a going concern basis. ? No sale of goods – No Sales Tax ? However, this view is not free from doubt
? Incentive
/ Deferment Loan – Available to Transferee Co
55 of
? Excise
Law
? New Registration No. ? CENVAT Credit available • Raw Material • Capital Goods
56 of
doc_566106411.pptx
Merger, Types of Merger, Introduction of Acquisition, Types of Acquisition, Difference between Merger & Acquisition, Drivers for M & A, Process of merger and acquisition, Scheme of Arrangement, tax governing M&A.
• Mna •Merchant •Buyback •Due diligence •Valuation •Overview
? ? ? ? ? ? ? ? ? ?
Introduction of Merger Types of Merger Introduction of Acquisition Types of Acquisition Difference between M & A Drivers for M & A Process Scheme of Arrangement Implications Case Laws
3 of
?
In common parlance it means combination of two or more commercial organizations into one.
Merging company loses its separate identity. It is fusion of two or more existing companies. All assets and liabilities of one or more Companies are transferred to another Company. Example:
• Merger of Idea and Spice Telecom
?
?
?
4 of
Before Merger
Shareholders of X
Shareholders of Y
X Ltd
Y Ltd
5 of
After Merger
Option 1 Option 2 Option 3
Shareholders of X & Y
Shareholders of X & Y
Shareholders of X & Y
X Ltd
Y Ltd
New co Z
Note- Based on the swap ratio, the shareholders of the transferor company are issued shares of transferee company
6 of
“We can’t merge again. Our letterhead already takes up the entire page.”
7 of
Vertical Merger:
Merger with suppliers or customers
Eg: Kochi Refineries Ltd Merges into Bharat Petroleum Corporation Limited
Cont…
8 of
Horizontal Merger:
? Between firms in the same
kind of business usually as competitors. ? Generally has the effect of reducing competition Countries committed to a competitive economy use Antitrust laws to prohibit such mergers.
Eg: Centurion bank of Punjab merging into HDFC Bank
Cont…
9 of
Conglomerate Merger:
Lines of business have nothing to do with one another
Eg: Indo Gulf and Birla Global Finance merging into Indian Rayon. New Co rechristened Aditya Birla Nuvo
10 of
?
?
?
Purchase of a company by another company. Acquirer more interested in assets (including intangibles) / cash flows; less interested in mutual sharing of risks and benefits with the target company. Examples:
• Tata Steel acquired Corus Group Plc.
• Hindalco acquired Novelis • Videocon acquired Daewoo Electronics Corp.
11 of
Acquisition - friendly or unfriendly
Friendly Takeovers: Acquirer's contacts target's management & proposes a deal. Target agrees and cooperates Unfriendly Takeovers: Acquiring firm makes a tender offer to target's shareholders. Meanwhile, target's management contests defensive measures
Why called unfriendly ?
Price is too low; fear to lose power, often jobs 12
of
Difference between Merger & Acquisition Merger
?
Acquisition
?
Consideration discharged by issue of shares of transferee co. Shareholders of merging co. will become shareholders of Merged co.
Consideration may be by cash or shares. Acquirer company shareholders have controlling interest.
?
?
?
Usually by negotiations.
?
May be friendly or hostile.
13 of
Drivers for Merger
?
? ? ? ? ? ?
?
Synergy of operations and economies of scale. Diversification. Capital restructuring. To increase the market share and to reduce the competition. Benefit of carry forward losses. Drop Down Effect of Global Restructuring Reduce the number of Companies in Group Backwards & Forward Integration
Cont…
14 of
?
? ? ?
?
Expansion Focus on Core Activities Curtail Competition Bail Out ‘Takeovers’ Tax Benefits
15 of
16 of
Due Diligence by parties Agreement on Appointed Date Valuation Scheme of Arrangement Approval by the Board of Directors Stock Exchange approval for listed Companies ? Meeting of Shareholders/ Creditors ? Registrar of Companies approval ? High Court approval ? Filing of High Court Order with ROC
? ? ? ? ? ?
17 of
Definitions: ? Appointed Date, ? Effective Date ? Undertaking ? Transferor Company ? Transferee Company ? Share Capital ? Transfer & Vesting of Undertaking of Transferor Company (Assets & Liabilities)
?
Cont…
18 of
? ? ?
?
? ?
?
Conduct of Business during Interim Period (by transferee) Transfer of Employees, Legal Proceedings, Contracts and Deeds Consideration(issue of shares) Accounting Treatment Modifications to the Scheme Conditions for Effecting the Scheme(approvals on which it is dependent on and effect of non-approval) Cost relating to Scheme(shared by both)
19 of
?
Clause 24 of the Listing Agreement
? Filing of the Scheme at least one month before filing ? ? ?
with the court for approval Pre and Post restructuring shareholding pattern to be intimated Filing of the notice, Explanatory Statement, etc. with the Stock Exchange Undertaking that the Scheme is in conformity with the Laws
20 of
High Court under whose jurisdiction the Registered office of the companies are situated ? Merger of WOS in the Holding Company Application by Holding Company can suffice ? Direction of convening meeting of shareholders & creditors
?
21 of
Publication of Advertisement ? Notice of the Meeting
?
? At least 21 days clear notice ? To be sent under certificate of posting ? Explanatory Statements, Scheme & Proxy Form to be
attached to the notice
?
Conducting Meeting
? Voting by polls ? Scrutinizers
Cont…
22 of
?Approval of Scheme at the Meeting
? Majority in number and ? ¾ th in Value
?
Results of the meeting to be reported to the High Court
23 of
Petition for the Approval of the Scheme ? Approval of the Regional Director ? Approval of Official Liquidator (OL) ? Appeals Against High Court’s Order - Possible
?
24 of
Order to be filed with the ROC within 30 days of receipt of the order of High Court ? Obtain RBI approval, if required
?
25 of
Payment of Stamp Duty ? Fixing Record Date for Allotment of Shares ? Arrangement for Listing of Newly Issued Shares
?
26 of
Case Laws
It is fair to use combination of three well known methods - asset value, yield value & market value
?Hindustan
Lever Employees ‘ Union Vs. HLL (1995) 83 Com. Case 30 SC
Valuation job can be entrusted to people who know the Company rather than giving to outsiders who will start from scratch
?Consolidated
Coffee V/s Arun Kumar Agrawal (1999) 21 SCL 11 (Kar) Cont…
27 of
Case Laws
(Cont.)
Exchange Ratio not disturbed by Courts unless objected and found grossly unfair
?Miheer
H. Mafatlal Vs. Mafatlal Industries (1996) 87 Com Cases 792 ?Dinesh v. Lakhani Vs. Parke-Davis (India) Ltd.. (2003) 47 SCL 80 (Bom)
Brands of a company are part of goodwill, cannot be separately valued
?Brooke
Bond Lipton India Limited (1998) 15 SCL 81 (Cal)
28 of
? Accounting ? Income
Tax ? Stamp Duty ? Sales Tax ? Excise
29 of
? ?
? ? ?
Came into effect from April 1,1995 Deals with: ? Accounting for Amalgamation & ? Treatment of any resultant Goodwill or Reserves Applicable only to company form of Organisation Does not deal with Acquisition of the whole or part of a company by another In Amalgamation, one company loses its Identity; In Acquisition, identity of companies are maintained
Cont…
30 of
Amalgamation means an amalgamation as per the provision of Companies Act, 1956 or any other law applicable to Companies, sections 391 to 394 of Companies Act, 1956 governs the provisions of amalgamation
In the nature of MERGER
In the nature of PURCHASE
31 of
?
Conditions for Amalgamation in the nature of Merger: ? All Assets & Liabilities are transferred ? At least 90% Share holders of transferor co. become share
?
?
?
holders of transferee co Consideration for Amalgamation to be discharged by issue of Equity shares Business of the transferor co. is intended to be carried on No Adjustments are intended to be made to the book value of assets and liabilities of transferor co
Cont…
32 of
?
All the above conditions should be satisfied simultaneously If any of the above conditions are not fulfilled it would be termed as Amalgamation in the nature of Purchase
?
33 of
Amalgamation in the nature of MERGER
Pooling of Interest Method
Amalgamation in the nature of PURCHASE Purchase Method
34 of
?
?
?
?
All Assets, Liabilities & Reserves of Transferor company are taken over at their existing carrying values Identity of Reserves is preserved Uniform Accounting Policy to be adopted Difference between the Consideration and Share Capital of transferor company shall be adjusted in Reserves of the Merged company
35 of
MERGER OF A LTD. INTO B LTD.
Liabilities
A Ltd
Rs.
B Ltd
Rs.
Assets
A Ltd
Rs. 23 22
B Ltd
Rs. 112 40
Equity Share Capital General Reserve Profit and Loss Balance Debenture Redemption Reserve Loans Current Liabilities Provisions Total &
40 7 -
75 Fixed Assets 65 Investments 15 Current Assets, Loans & - Advances 25 Profit and Loss Balance 52 232 Total
5
20 12 84
34
5
80
-
84
232
36 of
Assumptions
i) The share exchange ratio for the merger of A Ltd. into B Ltd. is: "For every 2 equity shares of Rs. 10 each fully paid up of A Ltd., 1 equity share of Rs. 10 each fully paid up of B Ltd."; which means that B Ltd. will issue equity share capital of Rs. 20 to the shareholders of A Ltd. 20 25
ii) Market Value of Fixed Assets of A Ltd is Rs iii) Market Value of Investments of A Ltd is Rs
37 of
a) POOLING OF INTEREST METHOD (AT BOOK VALUE)
Liabilities Equity Share Capital [See Assumption i)] B Ltd Rs. 95 Fixed Assets (23+112) Assets B Ltd Rs. 135
General Reserve (7+65)
Profit and Loss A/c (-5+15) Debenture Redemption Reserve (5+0) Capital Reserve Loans (20+25) Current Liabilities and Provisions (12+52) Total
72 Investments (22+40)
10 Current Assets, Loans & Advances 5 (34+80) 20 45 64 311 Total
62
114
311
38 of
?
For Amalgamation under Pooling of Interest Method ? Exchange ratio, description and number of shares ? Difference between consideration and net identifiable assets acquired and treatment of the same
39 of
?
? ?
?
Assets taken either at existing carrying value or fair value, value can also be assigned to non existent assets/liabilities The identity of the reserves, other than the statutory reserves is not preserved In case of Statutory Reserves, ”Amalgamation Adjustment a/c” of a Corresponding amount needs to be created which shall be reversed when separate identity of statutory reserve is no longer required Difference between Net Assets and Consideration: ? If Positive – Capital Reserve ? If Negative - Goodwill
40 of
b) PURCHASE METHOD (AT MARKET VALUES)
Liabilities
Equity Share Capital Assumption i)] General Reserve Profit and Loss Balance Debenture Redemption Reserve (DRR) (5+0) Capital Reserve (Bal. Fig) [See
B Ltd
Rs.
Assets
B Ltd
Rs. 132 65
95 Fixed Assets (20+112) 65 Investments (25+40) 15 Current Assets, Loans & 5 Advances (34+80) 27 Amalgamation Adjustment 45 a/c (Created against DRR) 64 316 Total
114
Loans (20+25)
Current Liabilities and Provisions (12+52) Total
5
316
41 of
? For
Amalgamation under Purchase Method
for amalgamation and its
? Consideration
description ? Difference between consideration and net identifiable assets acquired and treatment thereof including the period of amortisation of any goodwill arising on amalgamation.
42 of
For all Amalgamations
? Name and general nature of the companies ? Effective date of amalgamation ? Method of accounting used ? Particulars of the scheme sanctioned under a
statute
43 of
Special treatment for Restructuring under Income Tax Act. Salient Features are: ? Definitions/ Qualifying Conditions ? Capital Gains ? Carry Forward & Set-off of Losses ? Others
Cont…
44 of
Income Tax
? Definition
(Cont.)
of Amalgamation / Merger – Section
2(1B)
? All the properties and liabilities to be transferred
? Shareholders holding not less than 75% of value
of shares to become shareholders of Transferee Co.
Cont…
45 of
Income Tax
? Capital
(Cont.)
Gain Tax – Sec 47(vi) & 47(vii)
Not a transfer - no liability for capital gains tax in the hands of the Transferor Co. as well as for shareholders
? Cost
of acquisition of shares of Transferee Co. in the hands of Shareholders
COA of shares of Transferor Co. = COA of shares of Transferee Co.
Cont…
46 of
Income Tax
?
(Cont.)
Depreciation on the Assets being transferred ? Transferee Company will be entitled to Depreciation on the written down value (WDV) of the block of assets transferred which will be the same as in the case of Transferor Company had it continued to hold such assets ? Depreciation to transferor company and transferee company in the year of merger shall be apportioned in the ratio of the number of days for which the assets were used.
Cont…
47 of
Income Tax
?
?
(Cont.)
? ?
Carry Forward & Set-off Losses of Transferor Co – Sec 72A Qualifying Companies ? Companies Owning • Industrial Undertaking or • Ship or Hotel ? Banking Companies ? Public Sector Companies engaged in business of operation of aircraft Business Losses – 8 Years (Fresh Life) Unabsorbed Depreciation – Unlimited Period
Cont…
48 of
Income Tax
Conditions ? Transferor Company
?
(Cont.)
? Engaged in Business for at least three years to
which the loss or Unabsorbed depreciation relates ? Holds ¾ th the book value of fixed assets held by it 2 years prior to the date of merger
Cont…
49 of
Income Tax
Transferee company
(Cont.)
? Holds for at least 5 years ¾ th of book value of fixed
assets of transferor Co. ? Continues business of transferor Co. for at least 5 years
Rule 9 C
? Achieve 50% level of installed production capacity of undertaking of transferor co. before 4 years, and continue till 5th year
Cont…
50 of
Income Tax
? Closely
(Cont.)
held Co.- Section 79
? Carry
forward Business loss would lapse if shareholding pattern changes by more than 49 % ? Applies only to Business loss and not to unabsorbed depreciation ? Section 79 overrides Section 72A
51 of
?
Stamp Duty Payable in the states of Rajasthan, Maharashtra, Gujarat & Karnataka is on Court Order Other States - Duty Payable on Immovable Properties & Movable Properties as per applicable rates
?
Cont…
52 of
Stamp Duty
? Rates
(Cont.)
for Maharashtra
• Schedule 1 to the Bombay Stamp Act, 1958 under
Article 25(2)(da) relating to Conveyance
High Court order under section 394 of the Companies Act, in respect of amalgamation or reconstruction of companies 10% of market value of shares allotted in exchange and consideration if any paid but not exceeding the higher of: (i) 5% of Market Value of the immovable property in Maharashtra or (ii) 0.7% of Market Value of shares allotted in exchange and consideration if any paid
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Market Capital of XYZ ltd is Rs 1,000 lacs, Where as Immovable property transferred amounts to Rs 100 lacs. In the above case Stamp Duty will be calculated as follows: Market value of Shares Immovable Property 1000 10% of market Value of Shares = 100 lacs 100 Not exceeding higher of: - 5% of Market Value of Immovable Property = 5 lacs - 0.7% of market value of Shares = 7 lacs Therefore the Stamp duty payable will be Rs. 7 Lacs
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? On
Transfer of Business
? Sales tax payable is on sale of goods. ? ‘Business’ does not fall under the purview of ‘goods’
under the Sales tax Act. ? Transfer of business on a going concern basis. ? No sale of goods – No Sales Tax ? However, this view is not free from doubt
? Incentive
/ Deferment Loan – Available to Transferee Co
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? Excise
Law
? New Registration No. ? CENVAT Credit available • Raw Material • Capital Goods
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doc_566106411.pptx