For the increase/Change in share capital, it is required to acquire the approval of the registrar of companies by filing required forms. The amount of capital to invest in the Company is one of the most critical decisions that have to be made by the supporters when a company is in its incorporation stages. As the business begins to pick up, the Company may look to expand its operations, expand in size, scale, or structure. To make that dream a reality, it may require the driving of more funds into the Company, basically increasing/Changing the share capital of the Company. Sometimes, the amount of necessary capital might surpass the limit of the authorized capital at the time.
With globalization and liberalization and growing competition, many mergers and amalgamations are taking place all over the world. But if we take a close look at all the forms of corporate restructuring is some kind of an arrangement. Before going into the forms of corporate restructuring it is necessary to have a broad idea about the terms, compromise, and arrangement.
- As these two terms are not defined under the Companies Act, 2013, there is not much difference between these two words they are used interchangeably in most cases yet in strict senses few differences can be pointed out such as the merger is commonly used for the fusion of two companies.
- Special situation funds have traditionally invested in distressed enterprises (e.g., corporations approaching bankruptcy) with the ability to turn around following capital and management reorganisation.
- The re-conversion of the stocks toward fully paid up shares can also be done additionally.
- But if we take a close look at all the forms of corporate restructuring is some kind of an arrangement.
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The importance of Synergy
Post deal, L&T benefited from realized value of its cement division and focus on their core businesses such as engineering and construction. Grasim Ind. was benefited through economies of scale, increased capacity, overall competitiveness, multifunctional synergies and combined resource pool. A joint venture provides access to assets, knowledge and funds from both of its partners it capital restructuring is defined as altering the of a firm can combine the best features of those companies without altering the parent companies. Inorganic growth strategy includes change in the corporate identity through involvement/alliance/association with other entities. Such competition can be related to product and service cost and price, target market, technological adaptation, quick response, quick production by companies, etc.
If we go back 10–15 years, we can see significant disruptions happening all around us, and the pattern is just getting worse. Industry landscapes are undergoing revolutionary shifts as a result of disruption brought by technology and changing consumer needs. Investing early in companies that are expected to benefit from disruptive growth can yield higher profits.
In order to facilitate and execute the above three forms of restructuring, this form of restructuring is necessary. Such adjustments require the cooperation of all staff levels to ensure effective restructuring. L&T Ltd. demerged its cement division into a separate company Ultratech Cement Co.
This means that the company can increase its share capital without increasing the number of shares. They can increase the nominal value of existing shares to increase the share capital, not the number of shares subject to the condition that such amount can be called-up only during the https://1investing.in/ wound-up meeting the liability of the company. The company may reduce the share capital by cancelling any shares which are lost or are unrepresented by available assets. E.g., if the shares of the face value of INR 100, each fully paid-up is represented by Rs. 75 worth of assets.
Increasing of Authorized Share Capital
According to Section 2 of the Companies Act, 2013, ‘authorized capital’ or ‘nominal capital’ signifies such Capital as approved by the memorandum of a company to be the most considerable measure of the share capital of the organization. The Company which has chosen for expanding its Capital, first it has to check the current Authorized Share Capital. It is because the Company can’t give the shares past the authorized Share capital in any way, for issuing the shares it is required to increase the authorized share capital by changing the Memorandum of Association of the Company. The authorized capital is the greatest amount of Capital for which the Company can issue shares to the shareholders. As per the Section 2 of the Companies Act, 2013, the Authorised Capital limit is specified in the Memorandum of Association under the Capital Clause.
Corporate restructuring helps in improving the corporate performance by bringing it at par with competitors by accepting the technological and other changes. Competitive business necessitated to have sharp focus on core business activities, to gain synergy benefits, to minimize the operating costs, to maximize efficiency in operation and to tap the managerial skills to best advantage of the firm. Dr. Reddy’s Laboratory Ltd. is known for their inorganic growth strategies. Since its formation in 1984, it has acquired many companies such as Benzex Lab , Meridian Healthcare , Falcon , Betapharm , DowPharma Small Molecules Business , BASF , Alliance with GlaxoSmithKline .
Mergers, demergers, disinvestments, takeovers, joint ventures, franchising, strategic alliances, slump sale are some options that are adopted as a measure to achieve inorganic growth strategy. The Company having Share Capital if so authorized by the Article of Association, can modify the Share Capital. In this case, the Company needs to follow the technique as recommended under the Companies Act, 2013.
Today, restructuring is not an option but a conscious choice made by companies. The demonetization of currency created a significant incentive for digital payments. Through UPI and the JAM Trinity, the government is committed to digitising payments.
Economies of scale – Mergers result in enhanced economies of scale, due to which there is reduction in cost per unit. An increase in total output of a product reduces the fixed cost per unit. Such status allows it to take advantage of raising funds at lower cost.
For investors who seek to profit from unusual situations, thematic equity mutual funds investing in them can be a good option. In this write-up, I am going to discuss the Alteration of the share capital of the limited company. For this, we have to understand what is authorized capital and what is the alteration of share capital. To maintain financial dignity, the government specifies that no company can indiscriminately issue shares to raise capital. To that consequence, authorized share capital is the maximum value of share capital that the company is legitimately authorized to issue to shareholders.The company can increase/Changein share capital by executing Change in Share Capital Clause in the Memorandum of Association.
Corporate Restructuring – Meaning, Types, and Characteristics
Sufficient reserve is also one of the reasons for the reduction in share capital. When government by its order states that any debenture issued to any government by a company or any part under such circumstances, the debenture be converted into shares on the transfer of capital issued by the company. Selective capital reduction for a certain class of shares, with or without payout.
The management of the concerned corporate entity facing the financial crunches hires a financial and legal expert for advisory and assistance in the negotiation and the transaction deals. Once we have power in Article, we can amend the share capital of the company by passing Ordinary Resolution. It is to be noted that amending capital clause is less cumbersome than altering other clauses since other clause required passing of Special Resolution and other approval for example if the company is moving its registered office from one state to another state. Since we already discussed that authorized share capital is the maximum amount of share capital of the company, so one of the most fundamental reasons to alter share capital is to increase the authorized share capital of the company so that company can receive more capital for its growth.
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It would also include briefly explaining the terms such as merger, demerger, acquisition, amalgamation and compromise, combination through different examples and try to critically analyse how each of them is different from the other. It would also focus on the advantages and disadvantages of corporate restructuring and give an overview of the legal compliance other than the Companies Act, 2013. Through synergies or unlocking value, mergers, acquisitions, and divestitures can create value for shareholders and investors. A firm can gain a significant amount of market share, strengthen its pricing power, uncover cost-cutting possibilities, and improve its operating margins and profitability through mergers and acquisitions. Firms can unlock wealth for shareholders through divestitures if the value of the subsidiary and parent company individually is greater than the total worth of the company.
The organization utilizes cash to meet its necessity by the method of gaining business premises and stock-in-trade and so on. The company should be limited by shares, the company limited by guarantee having a share capital, the Article of Association must permit the company for alteration of share capital. Increase or decrease of authorized share capital of a company is known as alteration of share capital. As these two terms are not defined under the Companies Act, 2013, there is not much difference between these two words they are used interchangeably in most cases yet in strict senses few differences can be pointed out such as the merger is commonly used for the fusion of two companies. The merger is normally a strategic vehicle to achieve expansion, diversification, entry into new markets whereas Amalgamation is an arrangement for bringing the assets of two companies under the control of one company, which may or may not be one of the original two companies.
In addition to this, the need for corporate restructuring arises due to the change in the ownership structure of a company. Such change in the ownership structure of the company might be due to the takeover, merger, adverse economic conditions, adverse changes in business such as buyouts, bankruptcy, lack of integration between the divisions, over-employed personnel, etc. The other form of alteration of share capital is sub-division of shares i.e. 1 share of Rs. 10 each may be divided into 10 shares of Re. Intimation to the ROCSubsequently, taking approval in shareholder’s meetings, CorpBiz will help the company to draft the altered MOA to change in share capital. A company has to inform/notify about the same by filing form SH-7 with the MCA. Moreover, the form must be submitted in 30 days from the date of resolution.
Thus, during the course of meeting the members decide the alteration in the memorandum of association. Thus, after considering all the facts in the welfare of company, the board members by utilizing their powers pass an ordinary resolution. From banking to oil exploration and telecommunication to power generation, petrochemicals to aviation, companies are coming together as never before. Hence the government-controlled economy is no more the situation, in order to cope with the global competition it is being realized that corporate restructuring is a necessity. The company can go for Change in Share Capital by transforming the fully paid-up shares into the Stock.
Another disruptive driver is the use of digital platforms to connect disorganised retail to customers. For example, if any company has the current structure of 10 shares of 10 Rs. each out which 1 share is unpaid then when these shares are sub-divided into the 100 of shares of Re. 1 each then 90 shares will be fully paid-up remain 10 shares will be un-paid. Notice of EGMThe notification of the additional regular gathering, will be given to all the investors and executives of the organization. As well, a share of any part in an organization is a movable property transferable in the way mentioned in the articles of association of the Company. Share Capital is a privilege to a predefined amount of the share capital, carrying with its specific rights and liabilities.
Convertibility of rupee has attracted medium-sized companies to operate in the global markets. The content/information published on the website is only for general information of the user and shall not be construed as legal advice. While the Taxmann has exercised reasonable efforts to ensure the veracity of information/content published, Taxmann shall be under no liability in any manner whatsoever for incorrect information, if any. Thus, to be globally competitive and survive in the business with surplus, an enterprise needs to restructure with inventions and innovations. When a company wants to grow or survive in a competitive environment, it needs to restructure itself and focus on its competitive advantage.
In an organic growth strategy, there is change in the business model, along with management styles, financial structure etc. Tax benefits – Companies also use mergers and amalgamations for tax purposes. Especially, where there is merger between profit making and loss-making company. Major income tax benefit arises from set-off and carry forward provision u/s 72A of the Income-tax Act, 1961.