The current low valuation of publicly traded companies makes it a good time for share exchange acquisitions. Under current Indian law, an Indian company can only acquire foreign companies under the ADR/GDR share exchange mechanism if the Indian company is already listed on foreign stock exchanges. In addition, Indian companies wishing to acquire American companies could be confronted with the concept of “reverse” or “forward triangular” mergers, common structures in the United States. Reverse/term triangular merger The issuance of shares by the merged entity to non-resident shareholders must comply with the required entry pathways, sectoral ceilings/conditions and reporting requirements; While structuring M&A transactions through share exchanges clearly has advantages, selling shareholders must consider the disadvantages that come with it, in particular the fact that they do not receive consideration or liquid assets in the transaction. This is particularly relevant when individual promoters, as selling shareholders, have to bear a high tax burden on the profits generated by the sale of their shares. Therefore, the terms and conditions should be negotiated with sufficient attention to ensure that the interests of each party to the transaction are fully taken into account. For a merger to be tax-neutral, Indian tax law requires that the following conditions be met: (i) all assets and liabilities of the merged company must be transferred to the merged company; and (ii) at least 75% of the shareholders (depending on the value) of the merged company must become shareholders of the merged company. In addition, Indian tax law provides for an exemption from capital gains tax for shareholders of the merged company if: (i) those shareholders receive consideration for the transfer of shares in the merged company; and (ii) the merged entity is an Indian company. Given the widespread economic uncertainty due to the COVID-19 pandemic, acquisitions can be challenging due to stretched financial resources and low-risk lenders. Nevertheless, the pandemic also offers a significant opportunity, as a number of companies are undervalued and require capital inflows. In this article, we look at the key regulatory and practical considerations that affect stock trading in India.
“This preferential expense is consideration for the transfer of shares equivalent to 20.57 percent of Max Life`s paid-up share capital held by Mitsui Sumitomo`s to MFS as part of the share exchange transaction,” the company said. . . .