Scribd Logo
Upload

Welcome to Scribd!

  • 249 views

    Demerger

    Uploaded by

    Shubham Sakhuja
    This document defines and explains the concept of a demerger under Indian law. A demerger is when an existing company transfers one or more of its undertakings or business divisions to a new or existing company. The company transferring the undertaking is called the demerged company, and the company receiving the undertaking is the resulting company. Demergers allow large companies to separate business segments to achieve economies of scale and can be done for tax planning or enhancing shareholder value. They require approval via a scheme of arrangement under the Companies Act.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd

    Demerger

    Uploaded by

    Shubham Sakhuja
    249 views14 pages
    This document defines and explains the concept of a demerger under Indian law. A demerger is when an existing company transfers one or more of its undertakings or business divisions to a new or existing company. The company transferring the undertaking is called the demerged company, and the company receiving the undertaking is the resulting company. Demergers allow large companies to separate business segments to achieve economies of scale and can be done for tax planning or enhancing shareholder value. They require approval via a scheme of arrangement under the Companies Act.

    Copyright

    © © All Rights Reserved

    Available Formats

    PPTX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    This document defines and explains the concept of a demerger under Indian law. A demerger is when an existing company transfers one or more of its undertakings or business divisions to a new or existing company. The company transferring the undertaking is called the demerged company, and the company receiving the undertaking is the resulting company. Demergers allow large companies to separate business segments to achieve economies of scale and can be done for tax planning or enhancing shareholder value. They require approval via a scheme of arrangement under the Companies Act.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    249 views14 pages

    Demerger

    Uploaded by

    Shubham Sakhuja
    This document defines and explains the concept of a demerger under Indian law. A demerger is when an existing company transfers one or more of its undertakings or business divisions to a new or existing company. The company transferring the undertaking is called the demerged company, and the company receiving the undertaking is the resulting company. Demergers allow large companies to separate business segments to achieve economies of scale and can be done for tax planning or enhancing shareholder value. They require approval via a scheme of arrangement under the Companies Act.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    You are on page 1of 14

    Demergers

    Sujith Surendran
    Meaning and Definition
    • The term ‘demerger’ is not defined under the Companies Act, 2013.
    However, the explanation to section 230(1) of the Companies Act,
    2013, prescribes arrangement as including a reorganisation of the
    company’s shares capital by the consolidation of shares of different
    classes or by division of shares of different classes or by both of these
    methods.
    ‘Demerger’ is defined in section 2(19AA) of the Income-Tax Act, 1961 in
    relation to companies, means the transfer, pursuant to a scheme of
    arrangement under sections 391–394 of the Companies Act, 1956, by a
    demerged company of its one or more undertakings to any resulting
    company in such a manner that:
    • 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
    • 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
    • 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
    • the resulting company issues, in consideration of the demerger, its
    shares to the shareholders of the demerged company on a
    proportionate basis except where the resulting company itself is a
    shareholder of the demerged company
    • 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 shareholders 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
    • the transfer of the undertaking is on a going concern basis
    • the demerger is in accordance with the conditions, if any, notified
    under Income-Tax Act, 1961, s 72A(5)by the central government in this
    behalf
    Meaning
    • In a demerger, there is a transfer of undertaking(s) from an existing
    company to another existing company or transfer of an undertaking
    to form a new company. The company which transfers its
    undertaking(s) is often referred to as a ‘demerged company’ and the
    company to whom the said undertaking(s) is transferred is referred to
    as the ‘resulting company’
    Undertaking
    • ‘Undertaking’ shall include any part of an undertaking, or a unit or
    division of an undertaking or a business activity taken as a whole, but
    does not include individual assets or liabilities or any combination
    thereof not constituting a business activity.
    The Enabling Law
    • The provisions of sections 230–232 of the Companies Act, 2013 read
    with the Companies (Compromises, Arrangements and
    Amalgamations) Rules, 2016, dealing with ‘arrangement’ enable a
    company to undertake a demerger vide a scheme of arrangement.
    Motives for Demerger
    • A demerger can be carried out in more than one ways resulting in
    separation of one or more business divisions of a company.
    • Demergers are generally used by companies to hive off a business
    segment which then becomes a separate legal entity. Demerger
    activity enables large-scale businesses to address concerns relating to
    cost and bring in economies of scale.
    • Demergers may be undertaken for reasons such as efficient tax
    planning exercise, enhancement of shareholders’ value, and achieving
    better synergies for the demerged and resulting companies.
    Listed Company
    • In case of a demerger of a listed company, the resulting company, this
    may be an existing company or a new company to whom certain
    undertaking(s) is transferred, may or may not seek listing. If the
    resulting company seeks listing, the said company must comply with
    certain regulations prescribed by the Securities Exchange and Board
    of India
    Demerger can be affected by any of the following three ways:
    • Demerger by agreement between promoters; or
    • Demerger under the a scheme of arrangement with approval by the
    Court under section 391;
    • Demerger under voluntary winding up and power of liquidator.
    Demerger by agreement between promoters
    • Demerger may take place by agreement between promoters of the
    demerging company. In such a scenario, the principle company may
    spin off its specific undertakings to the resulting company. All the
    property, liabilities and issues of the principle company, transferred to
    the resulting company immediately before the demerger, becomes
    the property, liabilities and issues of the resulting company
    • Thank you

    You might also like

    pFad - Phonifier reborn

    Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

    Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


    Alternative Proxies:

    Alternative Proxy

    pFad Proxy

    pFad v3 Proxy

    pFad v4 Proxy