Introduction
A merger is a business strategy in which two or more companies merge into a single legal entity. Typically, companies that choose to merge are comparable in size and scope.
A merger combines two existing companies into one new company. There are many types of mergers and organizations can merge for different reasons. Mergers are made to increase the size of the company, to expand into new areas or to gain market share.
What are post-merger compliances?
Subsequent actions must be taken to accomplish the following objectives after the amalgamation:
A. ROC Compliances (e-forms INC-28, PAS-3)
- After getting the order of merger, both the transfer and transferee companies must file Form INC-28 within 30 days from the date of receiving the certified copy of the order of merger.
- INC-28 should have a copy of the order and declaration related to the increase in capital.
- All the stamp duty related to the increase in authorized share capital must be paid and a copy of the challan for the same will be attached in Form INC-28.
- If the amount of stamp duty is less than the amount already paid, then the transferee company must pay in advance before increasing the authorized share capital.
- Once the authorized capital has been increased, a board resolution must be approved to consider an allocation of shares to the new shareholders of the transferor companies by filing Form PAS-3.
B. Intimations to/ Compliances under Regulatory Authorities
a. Income Tax:
The transferor companies must notify the relevant authorities of the merger by sending a copy of the order. They should request that the relevant officials forward the file to the officials of the Transferee Company. Further, the transferor companies must surrender their PAN cards and inform TDS officials and request for deletion of TAN number and transfer of TDS.
The transferee company is required to send the relevant officer of the merger by filing a copy of the order. If the transferor company has unabsorbed loss or cumulated business losses, the transferee company is required to meet the necessitations set out in Sections 2(1)(b) and 72A of the Income Tax Act of 1961 to benefit from it.
b. GST:
It must be emphasized that the transferor and transferee companies will exist as separate entities until the NCLT passes its decision. In addition, the transferor companies must apply for a surrender of their registration certificates and a transfer of unused VAT credit to the transferee Company.
c. RBI:
If the Transferor Company, Transferee Company, or both are NBFCs, a copy of the order will be served to the RBI.
d. Treasury under the Stamp Act:
In the transfer of immovable properties from the Transferor Companies to the Transferee Company, a stamp duty of 0.05 percent is paid.
e. SEBI:
According to SEBI laws and regulations, if any of the merging companies is a listed entity, they must notify SEBI after obtaining approval for the merger.
f. Intimation to factory inspector and getting the necessary amendment in the factory licenses, approval under pollution control board, hazardous waste management and others.
g. Surrender of registrations obtained by the transferor company such as Employee's State Insurance code, Provident Fund account, licenses obtained under Shops and Establishment (if any) etc.
h. Surrender of any other licenses/ approvals/ permissions in transferor companies such as MSME registration, import and export code (IEC), etc.
i. Getting the transfer of patents of the transferor company to the transferee company.
j. Getting the transfer done for immovable properties of Transferor Company into transferee company and intimating to the concerned authorities such as land records authority, property tax authorities, etc.
C. Aspects related to accounting:
The following compliances are required with post-merger accounting:
- Transfer of immovable properties.
- Assets are transferred to the name of the acquiring company.
- The banks of transferor companies request them to close the bank accounts and the balance of the bank accounts of the transferor companies must be transferred to the transferee company.
- The debtors must be notified of the merger.
- Changes in company transferor arrangements such as leases, rental agreements, etc.
- Depositories must be notified of the transfer of shares, securities or mutual funds in the name of the transferee company.
- The assets and liabilities of the transferor companies are credited to the accounts from the specified date on which the accounts of the transferor are adjusted. Adjustments are made in the accounting of the transferring company to account for possible differences in the accounting principles used by the transferring companies and the acquiring company.
Conclusion
Compliance with post-merger requirements is critical to achieving the desired results after the merger of two companies. It is necessary that such requirements are met in a timely manner and that these obligations are sufficiently met to achieve the desired results of the merger. Companies may merge for many reasons, such as achieving economies of scale, increasing market share, gaining technical understanding and other reasons. In case the merger and compliance process are not followed, the purpose of the merger may fail.
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