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A Brief Overview of Post Merger Compliances

Ashish M. Shaji

| Updated: Sep 10, 2021 | Category: Mergers and Acquisitions

A Brief Overview of Post Merger Compliances

Merger and Acquisitions is a vital process but complicated one also. After the order of the tribunal is passed under Section 230-232 of the Companies Act 2013, certain steps should be taken by the transferor or transferee Company or both. In this article, we have discussed the major post merger compliances. 

What is Merger?

Merger is a corporate strategy to combine with other company and function as a single legal entity. Usually, companies deciding to merger are equal in size and in terms of scale of operations.

Merger unifies two existing companies into one new company, and there are few kinds of mergers, and there may be many reasons why businesses decide to merge. Mergers are done to extend the size of the business, grow into new markets or gain market share.

Now, let us look at the post merger compliances.

What are post merger compliances?

The major compliances that should be undertaken after the merger have been briefly discussed below:

Major Merger Compliances
  • ROC Compliances (e-forms INC-28, SH-7, PAS-3)
    • File INC-28 within 30 days of receiving the certified copy by both transferor and the transferee companies.
    • The copy of the order, as well as the statement of authorized capital, should be attached to INC 28;
    • When the form is approved, the transferor companies will be dissolved;
    • File SH-7 within 30 days of receiving the certified copy;
    • No need of holding any general meeting, and the copy of the order should be attached to SH 7 in place of members’ resolution;
    • Once the increase is made in the authorized capital, the board resolution has to be passed to consider allotment.
  • Intimations to/ Compliances under Regulatory Authorities like RBI etc.
  1. Income tax

Transferor companies need to intimate the concerned officers regarding the mergers by filing the copy of the order. They should request concerned officers to transfer the file to the officers of the transferee company. Further transferor companies should surrender their PAN cards and also intimate the TDS officers and make application for cancellation of the TAN number and transfer of TDS.

Transferee Company is required to intimate the concerned officer regarding the merger by filing the copy of the order. If the amalgamating company has unabsorbed loss and or cumulated business loss, to get the benefit of the same, the transferee company is required to comply with the conditions prescribed under Section 2(1) (b) and Section 72A of the Income Tax Act 1961.

2. GST

It may be noted that the transferor company and transferee companies will remain separate entities until the date of order by the NCLT[1].

Further transferor companies shall apply for the surrender of their registration certificates and also apply for the transfer of the unutilized cenvat credit to the Transferee Company.

3. RBI

The copy of the order to be served in case where the Transferor Company or the Transferee Company or both are NBFC.

4. Treasury under the Stamp Act

A stamp duty of 0.05% in case of transfer of immoveable property/ies from the Transferor Company to the Transferee Company.

  • Aspects related to Accounting

The post merger compliances related to accounting aspects include the following:

  1. Mutation of the immoveable properties;
  2. Transfer of the assets in the name of the Transferee Company;
  3. Bank accounts of the transferor companies should be transferred to the Transferee Company;
  4. Debtors have to be intimated about the merger;
  5. Change in the agreements entered by the transferor companies such as lease agreement, rent agreement etc., if any;
  6. Depositories have to be notified about the transfer of shares, securities or mutual funds in the name of the Transferee Company;
  7. Transfer of license, if any, to the Transferee Company after informing the government authority.
  8. As far as the liabilities are concerned, loan financiers and creditors should be informed about the merger. Further, keep the record of any pending litigation and also take note of any contingent liabilities.
  9. Please note that the assets and liabilities of the Transferor Companies will be transferred from the appointed date in the books of accounts, hence, restatement of the financial statements of the Transferee Company is required. Adjustments will be made in the books of the Transferee Company for difference in the accounting policies pursued by the Transferor Companies and Transferee Company, if any. It is advised to the transferee company to file the revised Income Tax Return.

Conclusion

Post merger compliances is crucial in order to get the desired results after the merger between two companies. You should ensure that the execution of such compliances is carried out within the time and that adequate care is given to such obligations so that the merged entity gets the desired results. As specified at the beginning of this article, companies may merge due to various reasons such as to obtain economies of scale, increase market share, to gain technical understanding and such other reasons. If the process of merger and compliances afterwards is not executed in a planned manner, then the objective of such merger may get defeated.

Read our article:Use of AI in M&A Due Diligence – Its Benefits and Drawbacks

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Ashish M. Shaji

Ashish M. Shaji has done his graduation in law (BA. LLB) from CCS University. He has keen interests in doing extensive research and writing on legal subjects especially on criminal and corporate law. He is a creative thinker and has a great interest in exploring legal subjects.

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