What is the Procedure for Company Takeover in India?
In this modern world, where company growth is at topmost with increasing competitive and financially unnatural environment, companies are recognizing various growth and strategies to build up their position in the market and financial performance. The different strategies used by any companies to enter new markets and spread their market base include Company Take Over, Amalgamation and Merger and Acquisition. Company Takeover is one of the most chosen methods for expansion and diversification of businesses in India. But before choosing this method, you must know about the procedure for Company Takeover in India. In this process, a company gets control over another by purchasing the popular stake in that company. The company purchasing the majority stake is known as the Acquirer/Bidder, and the company whose control is acquired is called the Target Company. In this blog, we discuss the benefits, types, and the procedure for Company Takeover in India.
Different Types of Company Takeover in India
Following is the list of all the different types of Company Takeover in India:
- Friendly Takeover: Before undergoing the procedure for Company Takeover, the acquirer company takes control of the targeted company known as the Friendly Takeover. That’s why it is a process where both the companies equally agree to the terms & conditions of a Company Takeover.
- Reverse Takeover: In this type of takeover, a Private Limited Company decides to purchase a public listed company to become entitled to list its share at a known stock exchange without going through the process of Initial Public Offer.
- Backflip Takeover: In this, an acquirer company chooses to become the subsidiary of the Target Company.
- Bail-out Takeover: In Bail-out Takeover, a well-recognized company purchases a poor or not a well-recognized company to bail it out from the liquidation process.
- Hostile Takeover: Hostile Takeover is just opposite of Friendly Takeover. In this takeover, the acquirer company does not attain any prior approval of the target company and forcefully pursues the procedure for Company Takeover.
Also, Read: 7 Steps to Takeover a Company In India
What are the Benefits of Company Takeover in India?
Following are some benefits that you can only avail after completing the procedure for Company takeover:
- Decrease the Competition: When an acquirer company purchases the controlling stake in a target company, it automatically decreases the market’s competition level.
- Increase in Business Size: In a short period, Company Takeover is the best method to spread a company’s business operation.
- Tax Benefits: In a takeover, the losses experienced by a bidder company are set-off against the target company’s profits, in this manner decreasing the net taxable income.
Complete Checklist – Procedure for Company Takeover
Below are the steps involved in the process of estimating a decision for Company Takeover:
- Planning: An acquirer company required first to examine the industry by going through the overall objective of takeover in terms of the opportunities, threats, strength, and weakness. It also includes other factors such as the size of the market, quality of management, and capital structure before starting the procedure for Company takeover in India.
- Selection of Candidates: The Company requires to search and select the appropriate candidates who are suitable or fit for takeover by taking into consideration.
- Financial Calculation: While calculation the company’s financial health, the following are some essential points that must be considered:
- Cash Flows.
- Way to finance the takeover.
- Maximum price payable for takeover.
Complete Procedure for Company Takeover in India
Once completing the steps involved in the checklist of a company takeover, as we mentioned above, a bidder company can go further with the procedure of company takeover in India. The procedure for Company Takeover can be summarized as:
- Step 1: Board Resolution: An acquirer company’s director require to pass a board resolution to approve bidding for the target company’s shares.
- Step 2: Submit an Application: After that, the company requires to apply with the commission by filing an application for the approval of the takeover bid. The companies file the application along with the following attachments:
- NOC or No Objection Certificate from the related Government Authority.
- Takeover Bid.
- Information Memorandum.
- Step 3: Registration of the Suggested Bid: Once the company received the approval, the bidder company needs to apply to register the proposed bid with the commission.
- Step 4: Takeover Bid: After attaining the proposed bid registration, the bidder company can go further with the takeover bid by sending the same to the target company.
- Step 5: Hold a Board Meeting: Once the company receive the takeover bid, the target company holds a board meeting and accepts 90% of its shares are subject to acquisition.
- Step 6: Filing the Takeover Report: Once the procedure for Company Takeover has complied, the acquirer company needs to file a takeover report within seven days of the takeover conclusion to the commission.
Consideration of Takeover
Consideration of takeover means the amount paid for the procurement of the target company. Following are some different forms of paying consideration:
- In the form of Shares: When the bidder company decide to assign its shares to shareholders of the target company.
- In the form of Cash: When the bidder company pays the consideration for the company’s share in cash to the target company and shares can be attained through an open market or a bid.
- By Attaining Minority Shares: If the acquirer or bidder company holds minimum 50% shares of the target company, acquirer company can decide to attain the balance equity.
- By Establishing a New Company: A bidder company can establish a new company by attaining the target company’s shares. The shareholders of both the companies are selected shares of the newly established company.
Legal Provision for the Takeover Regulation
Following are some legal provision for the takeover regulations:
Companies Act, 2013
- Section 230(11) of the Companies Act directs all forms of takes over, arrangements, and concession.
- Section 250(3) controls the takeover of the company’s management and assets by the administration of the company on the Tribunal’s order.
- Section 261 certifies the company’s administrator to prepare the scheme of reintegration & revival, and it controls the sick company’s take over by a solvent company.
SEBI Regulation, 2011
The takeover of all the listed companies is governed by the SEBI provisions and regulations along with Companies Act.
From above it is cleared that the main objective of choosing a company takeover is to achieve growth by latest & advanced technologies, market development, and product enhancement of the target company to increase the market size and productivity of the bidder company. But to achieve these objectives, it is compulsory to complete the procedure for company takeover in India. To know more regarding Company Takeover, contact Swarit Advisors.