3.1.6 Mergers and Acquisitions
Acquisition can be through issue of fresh capital or transfer of equity shares by an existing Indian holder . Though RBI permits freedom in transferring shares by an Indian shareholder to a foreign company , certain conditions are to be adhered whereas in certain cases a prior approval from the FIPB may be required . Over the years , restrictive provisions that regulated the expansions , mergers , amalgamations and takeovers of domestic companies have been removed to a large extent . However , certain regulations continue to govern the acquisitions of substantial interest in the company .
The SEBI ( Substantial Acquisitions of Shares and Takeovers ) Regulations , 2011 ( the takeover code ) seeks to protect the interest of small investors and to strengthen the regulatory framework for takeovers . Essentially , the takeover code is triggered if the acquisition in the shares of the target company , together with the shares already held , result in the investor holding 25 per cent or more of the voting capital or effectively changing the management control .
The takeover code requires that the acquirer makes a public offer to the remaining shareholders to acquire at least 26 per cent of the voting capital , at the offer price .
3.2 Other Entry Options
A foreign company may also enter the Indian markets by establishing a non-corporate entity which operates as an extension of the foreign company . These are
3.2.1 Liaison Office ( LO )
LO is in the nature of a representative office set-up primarily to understand the business and investment climate . It acts as a channel of communication for the head office . However , it cannot directly undertake any commercial activity . All running expenses are to be met only through inward remittances by the head office .
Scope of Activities
a . b . c .
Representing the parent company in India Promoting trade with India , including the act of sourcing Exploring technical or financial collaborations between parent and Indian partners
Set-up Process
Setting up a LO requires prior approval from RBI , the apex foreign exchange management authority in India . Approval is usually granted for a period of three years and can be renewed thereafter .
Compliance
As the LO does not undertake any commercial activity , it is not taxable in India . However , the LO is required to meet compliance requirements viz . tax withholding , audit , etc .
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