Cross border mergers are growing significantly with the shrinking of the globe. Moreover, India is steadily mountain climbing the ease of enterprise scores and is turning into a desired business vacation spot. Such a Conducive financial environment has spurred the boom of move border mergers.
In India, a merger happens when two corporate entities combine to create a single organization or enable one entity to survive while another entity owns or manages the management. However, the definition of corporate mergers is not limited to the domestic geographical area but is also commonly used on a global scale. This means that a company or body corporate from anywhere in the world may combine with another company or body corporate from a different country. This is what is called Cross Border Mergers.
An international body called the International Organization for Securities Commission (IOSCO) was founded in 1983 to promote and safeguard the interests of investors and businesses, as well as the need to govern cross-border merger transactions. India is a signatory member of this organisation. According to IOSCO norms, any foreign entity that wishes to participate in cross-border transactions with an Indian entity must have its security regulator sign the Memorandum of Understanding with SEBI (Stock Exchange Board of India).
A cross-border merger is of two types:
An inbound merger occurs when a foreign business merges with a domestic firm to form a domestic firm. In a cross-border merger, the resulting entity is a domestic or foreign organization that takes over the assets and liabilities of another company. An outbound merger occurs when a domestic corporation joins forces with a foreign company to form a new entity.
As per the law in India, an outbound merger happens when an Indian company merges with a foreign company, and the Indian company's shareholders have the option to buy the resulting company's shares. The foreign company will become a wholly-owned subsidiary or joint venture of the Indian company.
In India, outbound mergers are controlled and limited by:
Cross-border mergers are complex procedures, and there has often been a schism between countries because the laws and regulations regulating such transactions differ from country to country.
By facilitating international mergers, the Indian government has been able to help reduce certain possible problems. To facilitate and control cross-border mergers, the Indian government released the Foreign Exchange Management (Cross-Border Merger) Regulation, 2018 under the Foreign Exchange Management Act, 1999. Acquisition of a foreign company can be achieved by investment, according to the RBI's overseas direct investment rule.
Post enactment of the Companies Act, 2013 and FEMA (cross-border merger) regulation, 2018, both have gone hand in hand to regulate and govern the cross-border mergers in India. Section 234 of the Companies Act of 2013 contains provisions for cross-border mergers.
A cross-border merger encourages body corporates to explore all possible markets around the world. Companies from developing and under-developed countries usually benefit from technological advancements, business models of the transferee organisation, and the promotion of cross-cultural peoples through cross-border mergers. Such a cross-border merger benefits not only the businesses involved in the process, but also customers and governments by offering quality and alternative goods, combining various countries, and generating economic benefits and tax revenues for the government.
However, since the laws regulating cross-border mergers vary from country to country, there are limits to such a transaction. It is necessary to remember that, for the transaction to be completed successfully; all parties participating in the merger must comply with the laws governing their respective jurisdictions. This would make the deal more complicated and time-consuming, and unlike domestic mergers, there is no idea of a quick merger process for cross-border mergers in India.
We appreciate you contacting us at India Law Offices. We will review the details that you have submitted and one of our experts will connect with you shortly.
We appreciate you contacting us at India Law Offices. We will review the details that you have submitted and one of our experts will connect with you shortly.
Here are some of the other related articles authored by our experts which might be of interest to you.