DEMERGER
This query is : Resolved
07 August 2010
SIR,
I Want to know what is demerger and demerged company. please if you could explain with an illustration or a example
I Want to know what is demerger and demerged company. please if you could explain with an illustration or a example
08 August 2010
Demerger
The expression ‘Demerger’ is not expressly defined in the Companies Act, 1956. However, it is covered under the expression arrangement, as defined in clause (b) of Section 390 of Companies Act.
Division of a company takes place when
1. Part of its undertaking is transferred to a newly formed company or an existing company and the remainder of the first company’s division/undertaking continues to be vested in it; and
2. Shares are allotted to certain of the first company’s shareholders.
A demerger is a form of restructure in which owners of interests in the head entity (for example, shareholders or unit-holders) gain direct ownership in an entity that they formerly owned indirectly (the ‘demerged entity’). Underlying ownership of the companies and/or trusts that formed part of the group does not change. The company or trust that ceases to own the entity is known as the ‘demerging entity’.
The entity that emerge have its own board of directors and, if listed on a stock exchange, have separate listings. The purpose of demerger is to revive a company's flagging commercial fortunes, or simply to lift its share price.
Mode Of Demerger:
Under the scheme of arrangement with approval of the court U/s 391 of the Companies Act.
Procedure For Demerger:
1. Demerger forms part of the scheme of arrangement or compromise within the ambit of Section 390, 391, 392, 393, 394 besides Sec 394A
2. Demerger is most likely to attract the other provisions of the companies Act, envisaging reduction of Share capital comprising Sec. 100 to 105
3. The company is required to pass a special resolution which is subject to the confirmation by the court by making an application.
4. The notice to the shareholders convening the meeting for the approval will usually consist of the following detail:
(a) Full Details of the scheme
(b) Effect of the scheme on shareholders, creditors employee
(c) Details of the valuation Report
5. An application has to be made for approval of the High Court for the scheme of arrangement
6. It is necessary that the Articles of Association should have the provision of reduction of it’s Share Capital in any way, and its MOA should provide for demerger, Division or split of the Company in any way. Demerger thus, resulting into reduction of Companies share capital would also require the Co. to amend its MOA.
The expression ‘Demerger’ is not expressly defined in the Companies Act, 1956. However, it is covered under the expression arrangement, as defined in clause (b) of Section 390 of Companies Act.
Division of a company takes place when
1. Part of its undertaking is transferred to a newly formed company or an existing company and the remainder of the first company’s division/undertaking continues to be vested in it; and
2. Shares are allotted to certain of the first company’s shareholders.
A demerger is a form of restructure in which owners of interests in the head entity (for example, shareholders or unit-holders) gain direct ownership in an entity that they formerly owned indirectly (the ‘demerged entity’). Underlying ownership of the companies and/or trusts that formed part of the group does not change. The company or trust that ceases to own the entity is known as the ‘demerging entity’.
The entity that emerge have its own board of directors and, if listed on a stock exchange, have separate listings. The purpose of demerger is to revive a company's flagging commercial fortunes, or simply to lift its share price.
Mode Of Demerger:
Under the scheme of arrangement with approval of the court U/s 391 of the Companies Act.
Procedure For Demerger:
1. Demerger forms part of the scheme of arrangement or compromise within the ambit of Section 390, 391, 392, 393, 394 besides Sec 394A
2. Demerger is most likely to attract the other provisions of the companies Act, envisaging reduction of Share capital comprising Sec. 100 to 105
3. The company is required to pass a special resolution which is subject to the confirmation by the court by making an application.
4. The notice to the shareholders convening the meeting for the approval will usually consist of the following detail:
(a) Full Details of the scheme
(b) Effect of the scheme on shareholders, creditors employee
(c) Details of the valuation Report
5. An application has to be made for approval of the High Court for the scheme of arrangement
6. It is necessary that the Articles of Association should have the provision of reduction of it’s Share Capital in any way, and its MOA should provide for demerger, Division or split of the Company in any way. Demerger thus, resulting into reduction of Companies share capital would also require the Co. to amend its MOA.
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08 August 2010
http://www.moneycontrol.com/news/tax-expert/demerger-mystified-a-360-degree-viewthe-ril-demerger_198712.html
Check this link for example.
Check this link for example.
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