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DEMERGER: Demerger is a process of splitting up a company (transferor company) in two or more different companies (resulting companies) and transferring the assets and liabilities amongst the resulting companies. Slump Sale: Slump sale is a process wherein the assets and liabilities belonging to one of the undertakings of a company are separately identified and sold to a new company. Here we would include sale of assets also in Slump Sale for comparison purposes.
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Demerger: As per the Indian Companies Act 1956 the company which is willing to demerge has to follow the below mentioned process and it may take around 3 months to complete the same: Convey the Board meeting Draft the Scheme of Demerger Convey the General meeting & approve the scheme from shareholder of the company Make application to the jurisdictional High Court in form no 39 along with demerger scheme
Contd..
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Convey creditors meeting on High Court direction for approval of the scheme Convey shareholders meeting for final approval of the scheme Demerged company submits the petition filed with the High Court and the Chairmans report of shareholders meeting Submission of form no 21 with Registrar of Companies along with the stamp fee payable Obtain approval from Registrar of Companies Transfer assets and liabilities.
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Slump Sale / Sale of assets: There is no procedure specified under any legislations which a company needs to follow for effecting the slump sale. But the general procedure would be as follows: Identify the unit to be sold Identify the assets and liabilities which are attributable to that unit or undertaking Identify prospective buyers and finalize Complete the transaction by effecting the sale of assets and liabilities
Demerger
No Capital Gains tax on the Capital Gains tax depending on demerger if the resulting the period of holding company is Indian Company No value added tax as there is As the assets and liabilities are not sale of goods sold it may attract value added tax An application for change of An application for change of name of the company shall be name of the company shall be made to DGFT made to DGFT
Time required
Costs involved
Around 3 months
Expenditure on meetings and Expenditure would High Court application would account of tax be high
Which of the two options would be beneficial for a particular company depends on the peculiar situations and shall be evaluated on a case to case basis. The major determining factors would be: 1. Basic purpose of splitting up the business of the company; 2. Time limit (time frame within which company wants to complete the procedure); 3. Costs involved (including tax effects); 4. Procedural Hurdles
Form New Company OLD Co & New Company Form the new company as 100% subsidiary of Old Co. Purchase assets in the new company. Time frame to finish the above process 45 days Issues : EPCG obligation if any Sales tax can be offsetted. Suggestion Pune plant to be kept under Starion brand as it is offerred to LG Mega. Alternatively intimation is required to LG and Government