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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