What is corporate restructuring?
Corporate restructuring is a change in how a company is owned, financed, or organised. It can be a change of capital or debt, a merger, a takeover, a joint venture, or a sale of an undertaking. It is a choice, and it does not by itself make the business profitable.
What can be changed?
The company can change its equity or its debt, change which business it keeps, or combine with another person. A change made by issuing shares or altering capital is inside the company. A change made by combining with, buying, or selling to someone else is a transaction with that other person. Changing one private company into another form is a conversion, on the conversion page, and that is a narrower step than a merger.
When is a tribunal scheme required?
A merger or an amalgamation of companies is a compromise or arrangement under sections 230 to 232. The company applies to the National Company Law Tribunal. Shareholders and creditors vote in the manner the section requires, and the tribunal sanctions the scheme. The board’s resolution starts the proposal. It does not complete the merger. A listed company’s takeover of shares can also fall under the SEBI takeover regulations. A combination that crosses the Competition Act’s thresholds needs the Competition Commission of India’s approval. This page does not set those thresholds.
Which changes are not a scheme?
A slump sale is a transfer of one or more undertakings for a lump-sum consideration, without values being assigned to the individual assets and liabilities. The Income-tax Act defines that transfer in section 2(42C). It is not a tribunal merger unless the parties also use a scheme.
A joint venture is an agreement between two or more persons for a stated venture. It can be housed in a company or an LLP, or left as a contract. It ends when the agreement says it ends. A sale of shares in a private company is a transfer of those shares. Debt restructuring is an agreement with the lenders, or a scheme where the Act requires one. It does not, by itself, stop a liquidation.
Does the change itself cut tax?
No. Some transactions have their own tax treatment, including a slump sale. The treatment depends on the section that covers that transaction. A restructuring is not a general exemption, and this page does not quote a rate.
Frequently asked questions
Four questions cover whether a change is compulsory, a merger, a slump sale, and a joint venture.
Is corporate restructuring compulsory?
No. It is a choice the company, its shareholders, and, where the law requires it, the tribunal or a regulator make. It is not a cure the Act imposes.
Is every merger only a board decision?
No. A compromise or arrangement under sections 230 to 232 needs the tribunal’s sanction, after the shareholders and creditors have voted as the section requires.
Is a slump sale a sale of each asset at its own price?
No. A slump sale transfers an undertaking for a lump-sum price, without values being assigned to each asset and liability.
Does a joint venture have to be a company?
No. It is an agreement to carry on a stated venture. The parties may use a company, an LLP, or a contract.
Sources
A compromise or arrangement is sections 230 to 232 of the Companies Act. A slump sale is defined in section 2(42C) of the Income-tax Act. A large combination can also need the Competition Commission of India.