In general sense of business or economics, mergers and acquisitions are a combination of two companies into one larger company.This commonly used term also cites to the fascet of corporate strategy and management generally dealing with the combining of different companies. This aims to aid and finance while also helps in rapidly growing the company in a given industry without having to create yet another business entity.
Acquisition, also known as a takeover or a buyout, is the buying of one company (the ‘target’) by another.It usually refers to a purchase of a smaller firm by a larger one.
An acquisition may be classified into following types:-
i. Friendly and Hostile takeover:- A friendly takeover occurs when one corporation acquires another with the approval of both boards of directors for the transaction. Whereas hostile takeover occurs when the acquiring corporation, attempts to take over the target corporation, without the agreement of the it’s board of directors.
ii. Reverse takeover:- This is the case when a smaller firm acquires management control of a larger or longer established company and keeps it’s name for the combined entity.
iii. Reverse merger- It is when a private company that has strong prospects and is eager to raise financing buys a publicly listed shell company, usually one with no business and limited assets.
Laws Guiding Mergers & Acquisitions
The Competition Act, 2002 regulates combinations and governs the M&A transactions likely to cause an appreciable adverse effect on competition in India.
• The tax treatment of M&A transactions in India is governed by the Income Tax Act, 1961.
• Companies Act, 2013: Governs all companies in India. All corporate transactions, be it mergers, acquisitions or private equity funding, have to be implemented in accordance with the provisions of the.
• The SEBI (Substantial Acquisition of Shares andTakeovers) Regulations, 2011,governs M&A transactions which involve the acquisition of a substantial stake in a publicly listed company.
• Insolvency and Bankruptcy Code, 2016 (BC): regulates the dealing of distressed assets under the corporate insolvency resolution process.
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