Corporate Restructuring with a focus on Mergers and Acquisitions (Financial aspect only) | Commerce & Accountancy Optional Notes for UPSC PDF Download

Introduction

Mergers and acquisitions (M&A) carry potential risks such as exploitation of minority shareholders and the stifling of competition, potentially leading to monopolistic behavior. Consequently, many countries have established legal frameworks to regulate M&A activities. In India, mergers and acquisitions are governed by various laws including the Companies Act 1956, the Monopolies and Restrictive Trade Practices (MRTP) Act 1969, the Foreign Exchange Regulation Act (FERA) 1973, the Income Tax Act 1961, and oversight from the Securities and Exchange Board of India (SEBI).

Legal Safeguards Against Takeovers:

• Under the Companies Act, individuals or entities are restricted from acquiring shares in a public limited company exceeding 25 percent of the total paid-up capital without notifying the controlling group, particularly when the holding exceeds 10 percent. 
• Hostile takeover bids are subject to scrutiny, with companies empowered to reject share transfers that violate legal requirements, contravene regulations, or are deemed contrary to the company's interests or public welfare.

Protection of Minority Shareholders:

• Ensuring fairness, minority shareholders must be offered the same high price as majority shareholders. However, the accessibility of financial institutions, banks, and certain individuals to takeover processes often means smaller investors are unaware of proposals until it is too late. 
• The Companies Act permits purchasers to compel minority shareholders to sell their shares under specific conditions, including approval from at least 90 percent of shareholders within four months of the offer.

Guidelines for Takeovers:

• Stock exchanges' listing agreements outline takeover regulations, including requirements for timely notification of share acquisitions, limits on share acquisition without offering to other shareholders, mandates for public offers if certain thresholds are exceeded, and stipulations on offer prices and disclosure of terms.

Legal Procedures for Mergers and Acquisitions:

• The Companies Act prescribes legal steps for mergers and acquisitions. These include obtaining permission for amalgamation as per the companies' memorandum of association or seeking approval from shareholders, boards of directors, and the Company Law Board. 
• Procedures involve informing stock exchanges, obtaining board approvals, applying to the High Court, convening meetings of shareholders and creditors, obtaining court sanction, and filing court orders with the Registrar of Companies. 
• Assets and liabilities are transferred per the approved scheme, with consideration in the form of shares, debentures, or cash as per the proposal.