1.

A transaction where two firms agree to integrate their operations on a

relatively coequal basis because they have resources and capabilities
that together may create a stronger competitive advantage Merger
means Amalgamation.
Further Categorization as under:
- Consolidation
- Absorption.
Amalgamation deals with restructuring/rearrangement of the share
capital of promoters of companies. Many smaller companies when
merged or acquired into a larger company, along with the
aggregation of the financial statements that is called an
amalgamation or consolidation.
2. The process of Amalgamation is regulated by the companys act that
provides guidelines for the rearrangement of the companies under the
Companies Act 1956, the Income Tax Act 1961, and the Competition
Act 2002.
3. As per the Companies Act Provisions, it is mandatory for the
Companies to have the object clause of rearrangement of share capital
in its Memorandum of association (MOA).The process of merger is very
complex that takes into account the interest of shareholders ,creditors
and the public interest. The whole process of merger is a High Courtdriven process in India.
4. Amalgamation, consolidation, absorption, spin off, de- merger, are the
types of restructuring of the companies formed under Companies Act.
The provisions of all types of restructuring are provided under sections
390-394 of chapter V of Companies Act.
5. The Companies Act 1956 defines the Transferee Company and the
transferor company. The transferee company is the one which acquires
the other company i.e. transferor company. Transferee company i.e.
acquirer should be an Indian company whereas the transferor company
can be an Indian company or a company incorporated outside India.
6. The Income Tax Act (ITA) provides the taxation regulations on the
transfer of capital assets. Capital assets can be of two types; short
term or Long term under Income Tax Act. Short term capital assets are
those assets that are held for less than 36 months or 12 months or less
whereas Long term Capital Assets are those assets that are held for 36
months or more. As per ITA, both the Long term capital gains and short
term capital gains are taxed differently. But in case of mergers, capital

gains are exempted under Section 47(vi) of ITA for amalgamating

companies. Amalgamation is the process in which merger of one or
more companies takes place with another company or two or more
companies to form one company. The company which so merge being
referred to as amalgamating company or companies and the company
with which they merge refer to the company that is formed as a result
of merger called amalgamated company.
7. Any Cash consideration if paid to the shareholders of the
amalgamating company, it is liable to capital gain tax.
8. Any Normal business transaction other than amalgamation process
that involves the transfer of capital assets is subject to capital gains as
per provisions of ITA.
9. MRTP Act was abolished and Competition Act 2002 came into effect in
May 2009.
Competition Act provides all the provisions for anti-competitive
agreements, abuse of dominant position in the market, and
consolidation that leads to the creation of monopoly.The Competitive
Commission of India (CCI) and Competition Appellate (CA) tribunal,
which regulates the law are operational since 2011.
10.
SEBI regulates all the takeovers and acquisitions of companies as
per SEBI Act 1992.
Here, takeover means acquiring the control of the target company. The
person who acquires or agrees to acquire control of the target
company in terms of voting rights in the target company or agrees to
acquire the shares is called acquirer.
11.
As per SEBI Act 1992, the meaning of the word control implies as
below:
Control includes:
-the right to appoint majority of directors
-to control the management.
-Voting rights in the company.
12.
SEBI takeover code provides the regulations for the takeover of
the shareholdings and voting rights in listed Indian company.The
Substantial acquisition of shares or voting rights of a target company
should comply the specific rules of acquisition and disclosure as laid
down by SEBI before gaining any additional ownership in two ways:
-Threshold Limit for Disclosure of substantial holding in the target
company.
-Threshold Limit for making an Open Offer.
13.
Threshold Limit For Disclosure of Substantial holding in Target
Company:

- When any person holding more than 25% shares or voting rights of
a target company, it is mandatory to make a disclosure of his ownership to
the target company within 21 days from financial year ending 31st March for
the purpose of Dividend declaration.
14.
Threshold Limit for Making an Open Offer:
-When an acquirer acquires shares that increase his ownership to 25% or
more of shares or voting rights in the target company, then he is requires to
make a minimum public offer of additional 26% of the remaining
shareholders of the target company.
15. If acquirer holds more than 55% but less than 75% of shares or voting
rights in target company, in this case he is entitled to make an an Open Offer
of additional 26% of the remaining shareholders of the target company.
16. The threshold limit of 25% followed by the additional 26% open offer of
the remaining shareholders of the target company is amended by SEBI
regulations 2011 as earlier the trigger point was of 15% threshold limit
followed by additional 20% Open offer of the remaining shareholders of the
target company.
17.Increase in the trigger points provided more investors to participate in the
equity ownership of the company without triggering takeover regulations in
the form of an open offer and disclosures.
18. A non- compete fee was earlier required to be paid by the acquirers to
the promoters of the target company so that they do not re-enter into the
same business and become the competitor of the acquirer. So, Non-Compete
fees to the controlling promoters in the target company are prohibited.
19. Merger and acquisition is regulated by Foreign Exchange Management
Act 1999 (FEMA) where any foreign entity is investing in India. Investment
can be made in India by the foreign entity in two ways:
-

FDI route
FPI route

20. Under FEMA regulations 2000, Foreign company can also set up their
liaison office, project
Office in India to carry out certain activities.
21.Foreign investments can be made in India as Indian company wholly
owned subsidiary or as a joint venture with Indian partner or operating as
Branch/Liaison/Project office. A foreign company can set up its subsidiary
wholly owned company in India for carrying out its activities.

It is regarded as an Indian company and regulated by ITA, FEMA and

Companies Act and CCI Act.
22.FIIs can be made by foreign entity to operate as an Indian company.
Foreign entity can set up its wholly owned subsidiary in India. It helps the
foreign entity to carry out its activities.
Such a subsidiary is regarded as an Indian Company but fully owned by the
foreign entity.
This subsidiary can be registered as a private company or public company as
per the registration norms.
23. Foreign entity can also invest in India through joint venture with an Indian
partner. The objective is to select a partner in the same field area of activity
who has a good amount of experience and expertise in the selected line of
activity.
24.Foreign companies can also make investments in India through opening
the branch office/liaison office/ project office. This needs to submit the
application for opening the branch office in India in Form FNC along with the
required documents to foreign investment Division of RBI through authorized
dealer bank. If the business operations of the foreign entity falls in the
category where FDI is 100% permitted under automatic route, RBI gives
approval by itself else RBI needs to consult the Ministry of Finance.
25. Branch Office can be set up by the foreign company. Branch office setup
is sanctioned only when the foreign company has a consistent profitability
record for preceding 5 years. The foreign company should have a net worth
of not less than USD 100,000 or its equivalent.
26. Foreign direct Investment is governed by RBI and is a tool for foreign
ownership restriction in India.The regulatory system has supported the
inflows in the long term investment along with the economic growth ofthe
country. But FDI has some sectoral limits based on the rationale that certain
sectors may require the fund support in the form of FDI and certain other
sectors that are on priority of state support and protection, and opening of
these sectors to the foreign players may risk the domestic players, hamper
the in house competition.
27. Under the Automatic route of investment, foreign entity doesnt require
any prior approval either from RBI or from the government. But it has to
comply with the RBIs pricing guidelines.
Permitted investment is known as Automatic route of investment. It may be
100% investment or subject to sectoral investments.
28. Foreign Portfolio investment is regulated by SEBI regulations and FEMA
guidelines. All FIIs registered with SEBI need to get a approval from RBI to

invest in India under portfolio investment scheme. FPI is done through

foreign institutional investors-FIIs. After the amendments are made all the
existing Foreign Institutional investors and Qualified Foreign investors are to
be merged into one category called FPI. FIIs include Assets management
companies, Pension funds, Mutual funds, investment trusts, university funds,
Endowment funds and charitable trusts and societies.