Takeover of Private Limited Company in India

TAKEOVER OF CLOSELY HELD PRIVATE LIMITED COMPANY IN INDIA

Many times the entrepreneur takes a decision to acquire a closely non operational/ running businesses instead of registering a new business. Taking over a shelf company or operational company can be done via any of the ways mentioned below;

                                     

What are the different options for takeover of private Limited Company?

Ø  Acquiring or purchasing more than 50% of shares/voting in the company, but less than 75%. Purchaser can control appoint of board of directors

Ø  Purchase of 75% or more shares thus absolute majority.

Ø  Purchase of 100% shares thus complete majority

Ø  Acquiring only assets (land & building , plant & machinery ) & not the company

What is the real purpose of promoters of the company those selling the entity?

Advantages

·         Back date existence of the company so helps buyers apply tenders/ contracts

·         Transfer of shares & change in management are the only events involved. Hence easy to implement

·         The company remains same. Capital gains are avoided. No/less tax.

·         No transfer of land & building. Immovable assets remain in the name of the company. No stamp duty is involved

·         From seller point of view-payment could be adjusted to match payment in respect of capital gains

·         From purchaser point of view-cash flow could be adjusted.

·         Important registration number benefits could be obtained or continued in the name of the name of the company

·         Investment blocked in fixed assets could be realized & part of that could be invested somewhere else where again special incentives / tax holidays are available for the sellers.

·         Take over enhances competitiveness

·         Save time / energy for setting infrastructure

Laws involved

Ø  Company law

Ø  Stamp act

Ø  Income tax act

Ø  Registration act

Ø  Labour law like – ESI, PF, Gratuity, workmen compensation.

Ø  WMDC rules & regulation

Ø  Package incentive scheme, covenants.

Ø  MIDC rules & regulations

Ø  Banks/ financial institutions documentations/ sanctions.

Ø  Sales tax, professional tax.

Under these laws specific issues are to be considered

COMPANY LAW

It is important to do necessary due diligence before takeover of the company by doing View Public Documents at MCA wherein you can check the following;

Ø  Copy of MOA & AOA

Ø  Latest Financial Statements to check the financial position, creditors, debtors, etc

Ø  Latest Annual Return

Ø  All annual filings are upto mark or not?

Ø  Charges registered

Ø  Directors position

Ø  It is important to check the physical ROC file and the Statutory registers of company, Share Certificates, stamping on share certificates

Ø  Whether the objects cover the activity transferee is thinking of

Ø  company law audit-filing etc.: statutory audit , minutes

Ø  deciding liabilities , penalties : updations

Ø  pending suits/ claims/ notice-ST / excise

LABOUR LAW/INDUSTRIAL LAWS

Ø  ESI position/notice

Ø  PF position

Ø  Gratuity- policy taken/provided in balance sheet

Ø  Labour position- want/do not want settlement, full& final

Ø  Pending legal matters in respect of labour

             MIDC/WMDC/package incentive scheme

Ø  Dues paid upto what date

Ø  Lease rentals

Ø  Titles are properly with the company & nothing is pending

Ø  Any NOCs taken? Details of same

Ø  MSEB dues paid

Ø  Water tax/telephone charges paid

Ø  Any covenant in the agreement/leasedeed

Ø  Change in ownership through shareholding directorship

        STAMP ACT/REGISTRATION ACT

Ø  MOU on stamp paper

Ø  Indemnity on stamp paper

Ø  Power of attorney for disposing off shares on stamp paper

Ø  Notarization/ registration

BANK & FINANCIAL INSTITUTIONS

Ø  Documents executed

Ø  Any covenants regarding non disposal of shareholding, change in management , issue of new shares

Ø  Charges registered for facilities & position regarding society

INCOME TAX

Ø  Pending assessments

Ø  Advance tax paid provision Or Demand pending at Login id of Income Tax filings

Ø  Carry forward of losses whether allowed

Documents involved

Ø  Memorandum of understanding

Ø  Balance sheet as on cut off date

Ø  List of contingent liabilities

Ø  Indemnity bond

Ø  Final agreement

Ø  Transfer Deed

Ø  Discharge receipts

Ø  Minutes of board meetings

Ø  Letters to the bankers/ financial institutions for no object for change in management & shareholding pattern

Ø  NOC from WMDC/ DIC change in management/ shareholding for package incentives

 Steps involved

For more details, contact us at 9871903449 or email us at csnehaseth.cp@gmail.com