Demerger

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Anuraag Sharma (Querist)

18 February 2009 a co. X Pvt. Ltd. is having its 3 undertakings one of petroleum, second for telecommunication and third fir It services. now the co. wants to segregate its It & petroleum undertakings by way of demerger to B and C pvt ltd respectively.
Consequently it will result a downfall in the book value of per share of X pvt ltd. Should it be deemed as Capital reduction??
if yes, then are there any legal consequences besides that of capital reduction.??

Ronak Desai

Ronak Desai (Expert)

19 February 2009 Reduction in share capital as per sec. 100 of the companies act occurs when
(1) extinguishing or reducing the liability on any of its shares in respect of share capital not paid up or
(2) cancelling any paid up share capital which is lost or is unrepresented by avaialable assets or
(3)paying off any paid up share capital which is in excess of the wants of the company.

Book value per share has nothing to do with the reduction in share capital. Its based on the net worth of the company while share capital reduction is not dependent upon the net worth.

In this case, the following has to be kept in mind:
- procedures as per companies act, 1956
- taxability u/s 50B of the income tax act, 1961
- stamp duty payable, if any, under the bombay stamp duty act, 1950

and the company should also appoint the consultant in this regard for completing the entire procedures and giving the advices.

Anuraag Sharma

Anuraag Sharma (Querist)

20 February 2009 thanx for your valuable advice :)

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