Top 3 Corporate and Securities Laws considerations in Acquisitions
1. Acquisition of Shares:
Acquisitions may be via an acquisition of existing shares of the target, or by subscription to new shares of the target.
a. Transferability of Shares:
Depending upon the entity type, the eligibility and procedure of carrying out this process will change. For instance, maximum membership of private limited company is 200, and transferability of shares is governed by the AoA as guided by the Company Act, 2013. While acquiring shares of a private company, it is therefore advisable for the acquirer to ensure that the non-selling shareholders (if any) waive any rights they may have under the articles of association.
In case of a Public Limited Company, Shares are easily transferable. Any transfer of shares, whether of a private company or a public company, must comply with the procedure for transfer under its articles of association.
b. Squeeze out procedures:
Situations where there is already Contracts held by shareholders of the Transferee company, such sensitive situations guided by specific sections of Company Act, 2013.
- Section 395 of the CA 1956 – Section 395 envisages a complete takeover or squeeze out without resort to court procedures. Governs when Contracts between shareholders.
- Section 236 of the CA 2013 – Under the CA 2013, if a person or group of persons acquire 90% or more of the shares of a company, then such person(s) have a right to make an offer to buy out the minority shareholders at a price determined by a registered valuer in accordance with prescribed rules.
- Scheme of the capital reduction under section 100 of the CA 1956 – Section 100 of the CA 1956 permits a company to reduce its share capital in any manner and prescribes the procedure to be followed for the same.
- Section 186 of CA 2013 provides for certain limits on inter-corporate loans and investments.
2. SEBI Regulations
If the acquisition of an Indian listed company involves the issue of new equity shares or securities convertible into equity shares (“Specified Securities”) by the target to the acquirer, the provisions of Chapter VII (“Preferential Allotment Regulations”) contained in ICDR Regulations will apply (in addition to company law requirements mentioned above).
3. Takeover Code
If an acquisition is contemplated by way of issue of new shares, or the acquisition of existing shares or voting rights, of a listed company, to or by an acquirer, the provisions of the Takeover.
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