MCA Allows the Entry of Start-up Companies into the Scheme of Merger and Amalgamation

The Ministry of Corporate Affairs by way of Notification No. G.S.R. 93 (E), dated 01.02.2021, has declared an amendment in the Companies (Compromises, Arrangements and Amalgamations) Rules 2016. Such an amendment relates to the entry of start-up companies into the scheme of Merger and Amalgamation, and will come into force from the date of publication, i.e., 01.02.2021.

Further, the amendment is done by way of the powers conferred under section 469, together with the sections 230 to 233 and 235 to 240 of the Companies Act 2013. The said amended regulations will be known as the Companies (Compromises, Arrangements and Amalgamations) Amendment Rules 2021.

In this blog, we will discuss about the provisions concerning the entry of start-up companies into the scheme of Merger and Amalgamation.

Concept of Start-up Company

For the purpose of the provisions of the said regulations, the term “Start-up Company” means a private company that is incorporated either under the provisions of the Companies Act 1956 or Companies Act 2013, and is recognised by the Notification issued by the Department for Promotion of Industry and Internal Trade (DPIIT) on 19.02.2019.

Also, Read: Reasons: why you should opt for Mergers and Amalgamation

Provisions Concerning Entry of Start-up Companies into the Scheme of Merger and Amalgamation

The provisions concerning the Entry of Start-up Companies into the Scheme of Merger and Amalgamation can be summarised as:

Insertion of Sub Rule (1A) of Rule 25

As per this sub rule a scheme of Merger or Amalgamation formulated under the provisions of section 233 of the Companies Act 2013, can be entered into by the class of companies as follows:

1. Two or more start up Companies, or;
2. One or more start-up company, together with one or more small company;

Further, this sub rule is inserted after sub rule (1) of rule 25 of the Companies (Compromises, Arrangements and Amalgamations) Rules 2016.

Conclusion

In a nutshell, the main reason behind the amendment of the provisions of Rule 25 of the Companies (Compromises, Arrangements and Amalgamations) Rules 2016 was to increase the ambit of the regulations and to provide start-up companies the benefits and flexibility to enter into the scheme of merger and amalgamation. The same will automatically result in the growth and development of these entities.

Further, the said amended rules will be known as the Companies (Compromises, Arrangements and Amalgamations) Amendment Rules 2021 and have come into effect from 01.02.2021.

Lastly, in case of any other doubt or query, reach out to Swarit Advisors.

Copy of Official MCA Notification

Also, Read: Cross Border Mergers and Acquisitions in India: A Complete Guide