Mergers, Demergers & Business Restructuring

What is business restructuring?

Business restructuring means changing how a group's companies and businesses are organised: merging companies together, demerging a business into a separate company, transferring a business by slump sale, or reorganising share capital. Groups restructure to simplify, prepare for investment or sale, separate businesses, or cut compliance costs.

In India, mergers and demergers of companies usually happen through a scheme approved by the National Company Law Tribunal (NCLT), or through a faster route approved by the Regional Director for eligible companies. Getting the tax conditions right keeps the restructuring tax-neutral.

The key terms

The main restructuring tools:

Amalgamation (merger)

One or more companies merge into another, with shareholders receiving shares in the merged company.

Demerger

A business undertaking is transferred to another company, with shareholders receiving shares in it.

Scheme of arrangement

A scheme approved by shareholders, creditors and the NCLT under Sections 230–232.

Fast-track merger

A simpler route under Section 233 for eligible companies, approved by the Regional Director instead of the NCLT.

Slump sale

Sale of a business undertaking for a lump sum, without values assigned to individual assets.

Appointed date

The date from which the scheme takes effect for accounting and tax purposes.

Tax neutrality

Meeting the conditions that make transfers and share swaps exempt from capital gains tax.

Why restructure?

Common reasons groups reorganise:

Simplify the group

Fewer companies mean lower compliance costs and clearer control.

Prepare for investment

Investors want a clean structure with the business in one entity.

Separate businesses

Demergers let businesses be valued, funded or sold separately.

Succession

Restructuring can divide businesses among family branches.

Use losses

Mergers can allow accumulated losses to be used, within conditions.

Exit

Carving out a business can make a sale possible.

Regulatory needs

Some sectors require certain activities in separate entities.

Who is this for?

Listed companies have additional SEBI and stock exchange requirements; we coordinate with specialists where needed.

Restructuring routes compared

Choosing the route:

What we'll need from you

Group structure

All companies, shareholdings and businesses.

Financial statements

Recent audited accounts for each company.

Objectives

What the restructuring should achieve.

Creditors

Lists of secured and unsecured creditors.

Assets

Properties, licences and contracts to be transferred.

Valuations

Registered valuer reports where share swaps are involved.

Fees depend on the route, number of companies and complexity.

How a restructuring works

Our approach:

1. 1

   Design

   We design the structure and choose the route, testing tax and stamp duty.

2. 2

   Value

   Share exchange ratios are set with a registered valuer's report.

3. 3

   Draft

   The scheme and board resolutions are drafted.

4. 4

   Approvals

   Shareholder and creditor approvals are obtained, and applications filed.

5. 5

   Regulators

   Notices go to regulators such as the income tax department and ROC.

6. 6

   Implement

   After approval, assets, licences and registrations are transferred.

After the scheme is approved

Implementation matters:

File the order

File the approval order with the ROC within the time allowed.

Stamp duty

Pay stamp duty on the order as required in each state.

Transfer registrations

Move GST, licences, bank accounts and contracts.

Accounting

Account for the scheme from the appointed date.

Tax returns

Revise or file returns reflecting the scheme.

Dissolution

Transferor companies are dissolved without winding up.

Benefits and responsibilities