Transfer of entire business

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Viren

Legal

47 Points Posted on 26 October 2011

Question relating to buying a private limited company

A private limited company ("A") incorporated in India intends to purchase 100% of another another private limited company ("B")incorporated in India by way of either a slump sale agreement or by the sale of entire share capital of B to A whereby B will transfer entire business to A.

1. What is the difference between the two types of purchase ?

2. Which one is a better option to enter into ?

3. If i buy 100 % of entire share capital of B will it become a wholly owned subsidary ? (cause of 100% ownership)

3. What happens to the shares and shareholders in both the above cases.

4.Which provisions of the companies Act governs the above 2 cases.

Would it amount to an acquisition ? merger ? takeover ? amalgamation ?

Replies (2)

SUNIL KUMAR JAIN

PRACTISING COMPANY SECRETARY

187 Points Posted on 27 October 2011

Dear Mr. Viren,

1.In case of slump Sale , there is a sale of entire business ie Assets & Liabilities including transfer of employees. The Consideration may be in the form of cash/shares or debentures.The detailed provisions you may find in the Income Tax Act,1961.

2.In case of acqusition of shares, the company acuires 100% shares of the B Company.The B company would become 100% subsidiary of company A.

While planning between the two options ; implication of Stamp duty, Capital Gain Tax etc. are to be kept in mind.

Since in the example cited by you both companies are private limited companies provisions of section 293(1)(a), 372A, Takeover Code are not applicable.

With Regards,

Sunil K Jain

Practising Company Secretary

9810104162; skj13 @ rediffmail.com