Merger: Merger is defined as combination of two or more companies into a single company where one survives and the

others lose their corporate existence. The survivor acquires all the assets as well as liabilities of the merged company or companies. Generally, the surviving company is the buyer, which retains its identity, and the extinguished company is the seller. Merger is also defined as amalgamation. Merger is the fusion of two or more existing companies. All assets, liabilities and the stock of one company stand transferred to transferee company in consideration of payment in the form of • • • • !quity shares in the transferee company, "ebentures in the transferee company, #ash, or A mix of the above modes.

Acquisition: Acquisition in general sense is acquiring the ownership in the property. $n the context of business combinations, an acquisition is the purchase by one company of a controlling interest in the share capital of another existing company.

Methods of Acquisition An acquisition may be affected by %a& agreement with the persons holding ma'ority interest in the company management like members of the board or ma'or shareholders commanding ma'ority of voting power( %b& purchase of shares in open market( %c& to make takeover offer to the general body of shareholders( %d& purchase of new shares by private treaty( %e& Acquisition of share capital through the following forms of considerations vi). means of cash, issuance of loan capital, or insurance of share capital. Takeover: A *takeover+ is acquisition and both the terms are used interchangeably. Takeover differs from merger in approach to business combinations i.e. the process of takeover, transaction involved in takeover, determination of share exchange or cash price and the fulfillment of goals of combination all are different in takeovers than in mergers. ,or example, process of takeover is unilateral and the offeror company decides about the maximum price. Time taken in completion of transaction is less in takeover than in mergers, top management of the offeree company being more co-operative. De-merger or corporate splits or division: "e-merger or split or divisions of a company are the synonymous terms signifying a movement in the company.
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Moreover. . The basic purpose of merger or business combination is to achieve faster growth of the corporate business. savings in transportation costs. with different pro'ections made by different departments within the same company. finance is likely to be the single biggest obstacle to an acquisition. ( )!evamping production facilities: 2.unds apart. To share the benefits of suppliers economies by standardi)ing the materials. 0anks and investors. and several deals have gone badly wrong because buyers failed to dig deeply enough. improve quality and produce competitive products to retain and 2 . they have been able to negotiate prices as low as half of the initial figure. expanding 4. deterring investors who fear that they might not be able to sell their holdings at a later date.inancial institution in some Asian markets are banned from leading for takeovers. The financial records that are available are often unreliable. market and aiming at consumers satisfaction through strengthening after sale 5. . $t has to decide the specific ob'ectives to be achieved through acquisition. . To reduce cost.aising them may not be a problem for multinationals able to tap resources at home. To obtain improved production technology and know-how from the offeree company 7. are likely to be shown optimistic forecasts. most Asian conglomerates still do not present consolidated financial statements. "ue diligence can be difficult because disclosure practices are poor and companies often lack the information buyer need. and the skill to distinguish worthwhile targets. a successful Mergers / Acquisition growth strategy must be supported by three capabilities deep local networks.aster growth may be had through product improvement and competitive position. the abilities to manage uncertainty. where buyers have undertaken detailed due diligence. Assess target quality: To say that a company should be worth the price a buyer pays is to state the obvious. naturally. leaving the possibilities that the sales and the profit figures might be bloated by transactions between affiliated companies. and debt markets are small and illiquid. To obtain economies of purchase in the form of discount. To achieve economies of scale by amalgamating production facilities through more intensive utili)ation of plant and resources( 3. #oncealed high debt levels and deferred contingent liabilities have resulted in large deals destroying value. To safeguard the source of supplies of raw materials or intermediary product( 3. improvement of quality of product. #ompanies that rush in without them are likely to be stumble. services( 6. Purpose of Mergers and Acquisition: The purpose for an offeror company for acquiring another company shall be reflected in the corporate ob'ectives.( 4. and different pro'ections made for different audiences. 0ut assessing companies in Asia can be fraught with problems. overhead costs in buying department. 1ther possible purposes for acquisition are short listed below (1)Procurement of supplies: 2.What will it take to succeed? .unds are an obvious requirement for would-be buyers. To standardi)e product specifications. The attraction of knockdown price tag may tempt companies to skip crucial checks. etc. . The credit squee)es and the depressed state of many Asian equity markets have only made an already difficult situation worse. but for local companies. 0ut in other cases.

accounting. (. (. (') (eneral gains: 2. ()) *+n developmental plans: The purpose of acquisition is backed by the offeror company+s own developmental plans. etc. This gives birth to conglomerate combinations. To improve market share. To improve !:9 %!arning per 9hare&. To reduce advertising cost and improve public image of the offeree company( 7. To offer better satisfaction to consumers or users of the product. A company thinks in terms of acquiring the other company only when it has arrived at its own development plan to expand its operation having examined its own internal strength where it might not have any problem of taxation. secure additional financial facilities. 9trengthening retain outlets and sale the goods to rationali)e distribution( 6. The purpose and the requirements of the offeror company go a long way in selecting a suitable partner for merger or acquisition in business combinations. market extensional or other specified unrelated ob'ectives depending upon the corporate strategies.) /orporate friendliness: Although it is rare but it is true that business houses exhibit degrees of cooperative spirit despite competitiveness in providing rescues to each other from hostile takeovers and cultivate situations of collaborations sharing goodwill of each other to achieve performance heights through business combinations. hori)ontal. To eliminate competition and protect existing market( 3. borrow on better strength and the greater assets backing( 5. To obtain a new market outlets in possession of the offeree( 4.8. Thus. 9trategic control of patents and copyrights. ($) %inancial strengt&: 2. Types of Mergers: Merger or acquisition depends upon the purpose of the offeror company it wants to achieve. To improve its own image and attract superior managerial talents to manage its affairs( 3. $t has to aim at suitable combination where it could have opportunities to supplement its funds by issuance of securities.) -trategic purpose: The Acquirer #ompany view the merger to achieve strategic ob'ectives through alternative type of combinations which may be hori)ontal. To dispose of surplus and outdated assets for cash out of combined enterprise( 4. various types of combinations distinct with each other in nature are adopted to pursue this ob'ective like vertical or hori)ontal combination. eliminate competition and strengthen its market position. (A) 1ertical com2ination: 3 . To improve liquidity and have direct access to cash resource( 3. circular and conglomeratic as precisely described below with reference to the purpose in view of the offeror company. vertical. but might feel resource constraints with limitations of funds and lack of skill managerial personnel+s. To obtain new product for diversification or substitution of existing products and to enhance the product range( 5. (") Market e#pansion and strategy: 2. valuation. combinations could be vertical. (0) Desired level of integration: Mergers and acquisition are pursued to obtain the desired level of integration between the two combining business houses. 0ased on the offerors+ ob'ectives profile. 9uch integration could be operational or financial. The combining corporates aim at circular combinations by pursuing this ob'ective. To enhance gearing capacity. product expansion. To avail tax benefits( 6.

(D) /onglomerate com2ination: $t is amalgamation of two companies engaged in unrelated industries like "#M and Modi $ndustries. The factors. The basic purpose of such amalgamations remains utili)ation of financial resources and enlarges debt capacity through reorgani)ing their financial structure so as to service the shareholders by increased leveraging and !:9. The acquiring company obtains benefits in the form of economies of resource sharing and diversification. $n other words. reduction in advertising costs. The following main benefits accrue from the vertical combination to the acquirer company i. Merger enhances the overall stability of the acquirer company and creates balance in the company+s total portfolio of diverse products and production processes. elimination in competition concentration in product. are briefly noted below based on the research work by various scholars globally. manager+s ad promoters of the combing companies. increase in market segments and exercise better control on market. scarcity of resources and purchased products( %3& has control over products specifications.boots trapping earnings<. lowering average cost of capital and thereby raising present worth of the outstanding shares. in vertical combinations. implements its production plans as per the ob'ectives and economi)es on working capital investments. The acquiring firm belongs to the same industry as the target company. (/) /ircular com2ination: #ompanies producing distinct products seek amalgamation to share common distribution and research facilities to obtain economies by elimination of cost on duplication and promoting market enlargement. Advantages of Mergers and Takeovers: Mergers and takeovers are permanent form of combinations which vest in management complete control and provide centrali)ed administration which are not available in combinations of holding company and its partly owned subsidiary. The mail purpose of such mergers is to obtain economies of scale in production by eliminating duplication of facilities and the operations and broadening the product line. (3) 4ori5ontal com2ination: $t is a merger of two competing firms which are at the same stage of industrial process. (1) %rom t&e standpoint of s&are&olders 4 . The acquiring company through merger of another unit attempts on reduction of inventories of raw material and finished goods.e.A company would like to takeover another company or seek its merger with that company to expand espousing backward integration to assimilate the resources of supply and forward integration towards market outlets. the merging undertaking would be either a supplier or a buyer using its product as intermediary material for final production. which motivate the shareholders and managers to lend support to these combinations and the resultant consequences they have to bear. Motivations for mergers and acquisitions Mergers and acquisitions are caused with the support of shareholders. 9hareholders in the selling company gain from the merger and takeovers as the premium offered to induce acceptance of the merger or takeover offers much more price than the book value of shares. %2& it gains a strong position because of imperfect market of the intermediary products. reduction in investment in working capital. 9hareholders in the buying company gain in the long run with the growth of the company not only due to synergy but also due to .

takeovers fall solely under the regulatory framework of the 9!0$ . 1ne or more features would generally be available in each merger where shareholders may have attraction and favour merger. 2>67 vide sections 4>2?4>5 thereof or may be envisaged under the provisions of $ncome-tax Act. ( ) %rom t&e standpoint of managers Managers are concerned with improving operations of the company.. Aowever section 4>6 of the #ompanies Act. and notice must have been served on those shareholders within 3 months of reaching the >BC level. from the gains and achievements of the company i. ($) 3enefits to general pu2lic $mpact of mergers on general public could be viewed as aspect of benefits and costs to %a& #onsumer of the product or services( %b& =orkers of the companies under combination( %c& General public affected in general having not been user or consumer or the worker in the companies under merger plan.e.e. if the offerer has acquired at least >BC in value of those shares may give notice to the non-accepting shareholders of the intention of buying their shares.egulations.$nvestment made by shareholders in the companies sub'ect to merger should enhance in value. The procedure laid down in this section is briefly noted below. through %a& reali)ation of monopoly profits( %b& economies of scales( %c& diversification of product line( %d& acquisition of human assets and other resources not available otherwise( %e& 0etter investment opportunity in combinations. managing the affairs of the company effectively for all round gains and growth of the company which will provide them better deals in raising their status. under the 9ick $ndustrial #ompanies Act. 2>@6 whereas. the opportunity gains in alternative investments. 5 . $n order to buy the shares of non-accepting shareholders the offerer must have reached the >BC acceptance level within 5 months of the date of the offer. They can convert a closely held and private limited company into a public company without contributing much wealth and without losing control. Mergers are pursued under the #ompanies Act. Minority shareholders rights 9!0$ regulations do not provide insight in the event of minority shareholders not agreeing to the takeover offer. According to section 4>6 of the #ompanies Act. 2>67 provides for the acquisition of shares of the shareholders. 2>72 or arranged through 0$. 2. The >BC acceptance level shall not include the share held by the offerer or it+s associates. Mergers where all these things are the guaranteed outcome get support from the managers. /onsideration for Merger and Takeover: Mergers and takeovers are two different approaches to business combinations. At the same time. The sale of shares from one company+s shareholders to another and holding investment in shares should give rise to greater values i. 9hareholders may gain from merger in different ways vi). (") Promoter6s gains Mergers do offer to company promoters the advantage of increasing the si)e of their company and the financial structure and strength. perks and fringe benefits. 2>>8. where managers have fear of displacement at the hands of new management in amalgamated company and also resultant depreciation from the merger then support from them becomes difficult.

6 . $n certain circumstances. The notice given to shareholder will specify the choice of consideration and which consideration should apply in default of an election. The consideration offered is fair and reasonable. Alternatively. if the offerer is a company. 9tock transfer forms executed on behalf of the nonaccepting shareholders by a person appointed by the offerer must also be sent. $f a choice of consideration was originally offered. The notice must state that the offer is still open for acceptance and specify a date after which the right may not be exercised. 1n application made by an happy shareholder within six weeks from the date on which the original notice was given. which is received by the target. $f the terms of the offer give the shareholders a choice of consideration. >. which may not be less than 4 months from the end of the time within which the offer can be accepted. where the takeover offer has not been accepted by the required >BC in value of the share to which offer relates the court may. make an order authori)ing it to give notice under the #ompanies Act. the shareholder may indicate his choice when requiring the offerer to acquire his shares. The offerer has after reasonable enquiry been unable to trace one or more shareholders to whom the offer relates( b. should be held on trust for the person entitled to shares in respect of which the sum was received. 5. 1nce the notice has been given. $t will do this if it is satisfied that a. together with the shares held by untraceable shareholders. A copy of a notice and a statutory declaration by the offerer %or. 4. 1nce the company has received stock transfer forms it must register the offerer as the holder of the shares. $f the shareholder exercises his rights to require the offerer to purchase his shares the offerer is entitled and bound to do so on the terms of the offer or on such other terms as may be agreed. amount to not less than >BC in value of the shares sub'ect to the offer( and c. 2>@6. @. the court may make an order preventing the offerer from acquiring the shares or an order specifying terms of acquisition differing from those of the offer or make an order setting out the terms on which the shares must be acquired. section 53>. if the offerer does not wish to buy the non-accepting shareholder+s shares. The shares which the offerer has acquired or contracted to acquire by virtue of acceptance of the offerer. 8. the notice must give particulars of options available and inform the shareholders that he has six weeks from the date of the notice to indicate his choice of consideration in writing. on application of the offerer. The notice to the non-accepting shareholders must be in a prescribed manner. The consideration money. 6. the offerer is entitled and bound to acquire the outstanding shares on the terms of the offer. 7. $f the offerer fails to send such notice it %and it+s officers who are in default& are liable to a fine unless it or they took all reasonable steps to secure compliance. by a director& in the prescribed form confirming that the conditions for giving the notice have been satisfied must be sent to the target. At the end of the six weeks from the date of the notice to the non-accepting shareholders the offerer must immediately send a copy of notice to the target and pay or transfer to the target the consideration for all the shares to which the notice relates. it must still within one month of company reaching the >BC acceptance level give such shareholders notice in the prescribed manner of the rights that are exercisable by them to require the offerer to acquire their shares.3.

etc. Escrow account To ensure that the acquirer shall pay the shareholders the agreed amount in redemption of his promise to acquire their shares.oreign( %'& Acquisition of shares of company whose shares are not listed on any stock exchange.merger< but each term cannot be given equal treatment in the discussion because law has created a dividing line between *take-over+ and acquisitions by way of merger.or offers which are sub'ect to a minimum level of acceptance. Aowever. then 6BC of the consideration payable under the public offer in cash shall be deposited in the !scrow account. this exemption in not available if the said acquisition results into control of a listed company( %k& 9uch other cases as may be exempted from the applicability of #hapter $$$ of 9!0$ regulations by 9!0$. it is a mandatory requirement to open escrow account and deposit therein the required amount. 2>>8 vide section 4 excludes any attempt of merger done by way of any one or more of the following modes %a& 0y allotment in pursuant of an application made by the shareholders for right issue and under a public issue( %b& :referential allotment made in pursuance of a resolution passed under section @2%2A& of the #ompanies Act. "e-merger. The !scrow amount shall be calculated as per the manner laid down in regulation 3@%3&. 2>@6 or schemes of arrangements.egulations is to provide greater transparency in the acquisition of shares and the takeovers of companies through a system of disclosure of information.oreign collaborators who are shareholders?promoters( %e& Acquisition of shares in the ordinary course of business. 7 .egulations for substantial acquisition of shares and takeovers known as 9!0$ %9ubstantial Acquisition of 9hares and Takeovers& . All the different terms carry one single meaning of . 2>67 or any other law or regulation. having regarded in particular.egulations. mergers.The court will not make such an order unless it considers that it is 'ust and equitable to do so. $ndian or . The basic logic behind substantial disclosure of takeover of a company through acquisition of shares is that the common investors and shareholders should be made aware of the larger financial stake in the company of the person who is acquiring such company+s shares. amalgamation. to the number of shareholder who has been traced who did accept the offer. companies. amalgamation or reconstruction. by registered stock brokers. public financial institutions and banks on own account or as pledges( %f& Acquisition of shares by way of transmission on succession or inheritance( %g& Acquisition of shares by government companies and statutory corporations( %h& Transfer of shares from state level financial institutions to co-promoters in pursuance to agreements between them( %i& Acquisition of shares in pursuance to rehabilitation schemes under 9ick $ndustrial #ompanies %9pecial :rovisions& Act. relatives. which will serve as security for performance of obligation. and the acquirer does want to acquire a minimum of 3BC. Alternative modes of acquisition The terms used in business combinations carry generally synonymous connotations and can be used interchangeably. The main ob'ective of these . under the #ompanies Act. Accordingly . :articularly the takeover . $ndian promoters and . 2>67( %c& Allotment to the underwriters pursuant to underwriters agreements( %d& $nter-se-transfer of shares amongst group.

!very merger of two or more companies has to be viewed from different angles in the business practices which protects the interest of the shareholders in the merging company and also serves the national purpose to add to the welfare of the employees.egulations. The law provides encouragement through tax relief for the companies that are profitable but get merged with the loss making companies. !everse Merger: Generally. a company with the track record should have a less profit earning or loss making but viable company amalgamated with it to have benefits of economies of scale of production and marketing network.Payment of consideration #onsideration may be payable in cash or by exchange of securities. Therefore. the acquirer shall ensure that securities are actually issued and dispatched to shareholders in terms of regulation 3> of 9!0$ Takeover . after sales service. 0ut in a free economy a monopolist does not stay for a longer period as other companies enter into the field to reap the benefits of higher prices set in by the monopolist. preventing the distribution of benefits resulting from diversification of production activity. 0oth workers and communities will suffer on lessening 'ob opportunities. etc. etc.or this purpose he is required to open special account with the bankers to an issue %registered with 9!0$& and deposit therein >BC of the amount lying in the !scrow Account. Ae can transfer the funds from !scrow account for such payment. (2) 7orkers community The merger or acquisition of a company by a conglomerate or other acquiring company may have the effect on both the sides of increasing the welfare in the form of purchasing power and other miseries of life. (c) (eneral pu2lic Mergers result into centrali)ed concentration of power. 9uch monopolists affect social and political environment to tilt everything in their favour to maintain their power ad expand their business empire. This enforces competition in the market as consumers are free to substitute the alternative products. (a) /onsumers The economic gains reali)ed from mergers are passed on to consumers in the form of lower prices and better quality of the product which directly raise their standard of living and quality of life. The balance of benefits in favour of consumers will depend upon the fact whether or not the mergers increase or decrease competitive economic and productive activity which directly affects the degree of welfare of the consumers through changes in price level. =here the consideration is payable in exchange of securities. Two sides of the impact as discussed by the researchers and academicians are firstly8 mergers with cash payment to shareholders provide opportunities for them to invest this money in other companies which will generate further employment and growth to uplift of the economy in general. 0ut in many cases. As a consequence of this merger the profit earning company survives and the loss making company extinguishes its existence. consumers and does not create hindrance in administration of the Government polices. These advances result into economic exploitation. therefore. the sick company+s survival becomes more important for many strategic reasons and to conserve community interest. $t is. $nfact this type of merger is not a normal or a routine merger. -econdly8 any restrictions placed on such mergers will decrease the growth and investment activity with corresponding decrease in employment. if any. it is difficult to generali)e that mergers affect the welfare of general public adversely or favorably. quality of products. =here it is payable in cash the acquirer is required to pay the amount of consideration within 32 days from the date of closure of the offer. !conomic power is to be understood as the ability to control prices and industries output as monopolists. called as a !everse Merger9 Procedure for Takeover and Acquisition: 8 . Ae should make the entire amount due and payable to shareholders as consideration. .

if any. including holding of persons acting in concert with him( %8& 9alient features of the agreement. $9 /ontents of announcement: :ublic announcement of offer is mandatory as required under the 9!0$ . Additional shares can be had E 3C of voting rights in any year. such as the date. for the acquisition of control over the target company. monetary or otherwise. the number of fully paid up and partially paid up shares. the manner of payment of the consideration and the number and percentage of shares in respect of which the acquirer has entered into the agreement to acquirer the shares or the consideration. it is required that it should be prepared showing therein the following information %2& :aid up share capital of the target company. "9 Timings of announcement: :ublic announcement should be made within four days of finali)ation of negotiations or entering into any agreement or memorandum of understanding to acquire the shares or the voting rights. the price at which the shares are being acquired. the name of the seller. 9 :se of media for announcement: :ublic announcement shall be made at least in one national !nglish daily one Aindi daily and one regional language daily newspaper of that place where the shares of that company are listed and traded. including disclosers whether the acquirer proposes to dispose of or otherwise encumber any assets of the target company :rovided that where the future plans are set out.egulations.egulation 32 that is a& The public offer of minimum 3BC of voting capital of the company to the shareholders( b& The public offer by a raider shall not be less than 2BC but more than 62C of shares of voting rights. the public announcement shall also set out how the acquirers propose to implement such future plans( %2B& The *specified date+ as mentioned in regulation 2>( %22& The date by which individual letters of offer would be posted to each of the shareholders( %23& The date of opening and closure of the offer and the manner in which and the date by which the acceptance or re'ection of the offer would be communicated to the share holders( %24& The date by which the payment of consideration would be made for the shares in respect of which the offer has been accepted( 9 . %4& The minimum offer price for each fully paid up or partly paid up share( %5& Mode of payment of consideration( %6& The identity of the acquirer and in case the acquirer is a company. the identity of the promoters and. to which the company belong( %7& The existing holding. or the persons having control over such company and the group. %3& Total number and percentage of shares proposed to be acquired from public sub'ect to minimum as specified in the sub-regulation %2& of . if any. of shares of the target company made by him during the twelve month period prior to the date of the public announcement( %>& 1b'ects and purpose of the acquisition of the shares and the future plans of the acquirer for the target company. if any. if any. as the case may be( %@& The highest and the average paid by the acquirer or persons acting in concert with him for acquisition. of the acquirer in the shares of the target company. Therefore.Public announcement: To make a public announcement an acquirer shall follow the following procedure 19 Appointment of merc&ant 2anker: The acquirer shall appoint a merchant banker registered as category D $ with 9!0$ to advise him on the acquisition and to make a public announcement of offer on his behalf.

the Monopolies and . from Fonresident $ndians or otherwise( %26& :rovision for acceptance of the offer by person who own the shares but are not the registered holders of such shares( %27& 9tatutory approvals required to obtained for the purpose of acquiring the shares under the #ompanies Act. if any( %2@& =hether the offer is sub'ect to a minimum level of acceptances from the shareholders( and %2>& 9uch other information as is essential fort the shareholders to make an informed design in regard to the offer.estrictive Trade :ractices Act. with effect from the specified date.e. it is necessary to seek the permission of shareholders. and?or any other applicable laws( %28& Approvals of banks or financial institutions required. <nformation to t&e stock e#c&ange: The acquiring and the acquired companies should inform the stock exchanges where they are listed about the merger. 2>67. or otherwise or foreign i. financial institutions. identity of the offerer. including the details regarding the sources of the funds whether domestic i. 1ffer "ocument The offer document should contain the offers financial information. details of the offerer+s existing holdings in the 1fferee #ompany etc and information should be made available to all the shareholders. administered or controlled."isclosure to the effect that firm arrangement for financial resources required to implement the offer is already in place. Approval of 2oard of director: The boards of the directors of the individual companies should approve the draft proposal for amalgamation and authori)e the managements of companies to further pursue the proposal. policies. '9 *ffer Price The acquirer is required to ensure that all the relevant parameters are taken into consideration while determining the offer price and that 'ustification for the same is disclosed in the letter of offer. 1alue 3ased Management and /orporate (overnance /orporate (overnance: #orporate governance is the set of processes. 8. board of directors and the company law board before affecting the merger. #orporte governance also 10 %25& . . %iling of court order: #ertified true copies of court orders will be filed with the registrar of companies. the high court will pass order sanctioning the amalgamation scheme after it is satisfied that the scheme is fair and reasonable. -anction 2y t&e &ig& court: After the approval of shareholders and creditors on the petitions of the companies. The high court would convene a meeting of the shareholders and creditors to approve the amalgamation proposal. 2>84. $n the absence of these provisions in the memorandum of association. Application in t&e &ig& court: An application for approving the draft amalgamation proposal duly approved by the boards of directors of the individual companies should be made to the high court. Transfer of assets and lia2ilities: The assets and liabilities of the acquired company will be transferred to the acquiring company in accordance with the approved scheme. Also.e. its intention to continue the offeree company+s business and to make ma'or change and long term commercial 'ustification for the offer. laws and institutions affecting the way in which a corporation is directed.egal Procedures: Permission of merger: Two or more companies can amalgamate only when amalgamation is permitted under their memorandum of association. -&are&olders and creditors meetings: The individual companies should hold separate meeting of their shareholders and creditors for approving the amalgamation scheme. )9 Disclosure The offer should disclose the detailed terms of the offer. customs. from banks. the acquiring company should have the permission in its ob'ect clause to carry on the business of the acquired company.

This is often limited to the question of improving financial performance. the functioning of a company is affected by several other economic players in the society. customers and environment. $ndonesia. :rinciples of corporate governance ? 1!#" principles of corporate governance ? !lements of corporate governance Among the various attempts to evaluate best global standards. American expansion after world war $$ through the emergence of multinational corporations saw the establishment of managerial class. obtain relevant information from the company on a timely and regular basis. Definition: /orporate governance is a field in economics that investigates how to secure?motivate efficient management of corporations by the use of incentive mechanisms. #urrent preoccupation of corporate governance can be pinpointed at two events The !ast Asian crisis of 2>>8 saw the economies of Thailand. There is a significant synergetic relationship between the company and its employees. The 1!#" principles protect the interests of share holders as well as stake holders like employees. 9outh Gorea. legal scholars pondred on changing role of the modern corporation in society. =hile the share holders re the true oweners. "9 T&e role stake&olders: The rights of stakeholders as established by law should be recogni)ed ans active cooperation between corporations and stakeholders in creating wealth. such as contracts. pay and stock losses periodically have led to more frequent calls for corporte governance reforms. 19 T&e rig&ts of s&are&olders: .ights of shareholder mentioned in the 1!#" report cover the registration of right to ownership with the company. state corporation law enhanced the rights of corporation boards to govern without unanimous consent of shareholders in exchange of statutory benefits like appraisal rights. elect members of the board and share in the profits of the company. The concerns of share holders over administration. the rights of individual owners and sharehoders have become increasingly derivative and dissipated. participate and vote in general share holders meetings. 9ince that time. organi)ational designs and legislation. conveyance or transfer of shares. in order to make coporate governance more efficient. and because most large publicly traded corporations in america are incorporated under corporate administration friendly delaware law. creditors. The lack of corporte governance mechanisms in those countires highlited the weakness of institutions in their economies. suppliers. Malaysia and The philippines severly affected by the exit of foreign capital after property assets collapsed. $n the 3Bth century immediately after wall street crash of 2>3>. 'obs and sustainabiity of functionally sound enterpreses should be encouraged. Any changes in voting rights of common shareholders can be done with the consent of those shareholders. for example.includes the relationships among the many players involved and the goals for which the corporation is governed. They should also implement procedures to independenly verify and safeguard the integrity of the companys financial 11 . how the corporate owners can secure?motivate that the corporate managers will deliver a competitive rate of return 4istory of corporate governance: $n 2>th century. and because americas wealth has been increasingly securiti)ed into various corporte entities and institutions. the principles evolved by organisation for !conomic #ooperation and "evelopment %1!#"& released in 2>>> have been accepted as an international benchmark. The second event was the american corporate crisis of which saw the collapse of two big corporations !nron and =orld #om. Many large corporations have dominent control over business affairs without sufficient accoutability or monitoring by their board of directors. $9 Disclosure and transperancy: 1rganisations should clarify and make publicly known the roles and responsibilities of board and management to provide shareholders with a level of accountability. 9 T&e equita2le treatment of s&are&olders: All shareholders should be treated equitably and the law should not make any distinction among different shareholders holding a given class or types of shares.

a corporation is governed by a board of directors. )9 <ntegrity and et&ical 2e&aviour: 1rganisations should develop a code of conduct for their directors and executives that promotes ethical and responsible decision making. 9pain. $taly. $ndonesia and the :hilippines.rance.reporting. acquiring another company. The liveral model of corporate govenance encourages radical innovation and cost competition. Argentina and tother countries in south america. monitiring managements performance or corporate control. the introduction of a minimum number of non executive directors. This was followed by the recommendations of Gumaramangalam 0irla #ommittee 12 . customers and the community. . 1ther duties of the board may include policy setting. The monitoring of these explanations is left to shareholders themselves.to comply or explain< code of governance. whereas the coordinated model of corporte governance facilitates incremental innovation and quality competition.emuneration "isclosure !xternal corporate governance controls Government regulations Media pressure Takeovers Managerial labour market Telephone tapping /orporate governance models: Anglo american model: There are many different models of corporate governance around the world. $n the united states. /orporate (overnance in <ndia: $n $ndia. audit and nomination committees. thus dominating capital markets. The liveral model that is common in anglo american countries tends to give priority to the interests of shareholders. but needs to get approval for certain ma'or actions such as raising money. the formation and composition of remuneration. if they choose not to apply those principles they have to explain in their annual reports why they dicided not to do so.amily companies also dominate the Iatin model of corporate governance that is companies in Mexico. 0ra)il. This is a principle based code that lists a do)en of recommended practices. =on-anglo american model: $n !ast asian counties family owned companies dominate corporate assests. '9 !oles and responsi2ilities of 2oard: The board needs a range of skills and understanding to be able to deal with various business issues and have the ability to review and challenge management performance. the introduction of a time limit for #!1+s contracts. the top 26 families controlled over 6BC of publicly owned corportion through a system of family cross-holdings. These differ according to the variety of capitalism in which they are embeded. such as the seperation of #!1 and chairman of the board. "isclosure of material matters concerning the organisation should be timely and balanced to ensure that all investors have access to clear. The coordinated model that one finds in continental europe and 'apan also recogni)es the interests of workers. $nternal corporate governance controls Monitoring by board of directors . The #!1 has broad power to manage the corporation on a daily basis. independent directors. $n countries such as :akistan. the #onfederation of the $ndian $ndustry %#$$& took the lead in framing a desirable code of #orporate Governance in April 2>>@. and other expensive pro'ects. managers. . Iisted companies in the HG have to apply those principles. The HG has pioneered a flexible model of regulation of corporate governance known as . which has the power to choose chief executive officer. decision making. suppliers. factual information. $t nees to be of sufficient si)e and have appropriate level of commitment to fulfil its responsibilites and duties.

financial ratios and have some knowledge of company law. system and process are based on two core principles 2. the full board should meet at intervals of two months and atleast 7 times a year. 23. corporate governance structure. Fo individual should be director on the boards for more than 2B companies at any given time. 5. 3. Fon executive directors should be paid commission and offered stock option for their professional inputs besides their sitting fees. "etails of defaults. 3. @. payments for intangibles and foreign exchange exposures should be reported to access to all financial information. creditors. The chairman of committee should be an independent director and should be present at the companies annual general meeting. The government must allow for greater funding to the corporate sector against the security of shares and other papers. 7. As the key to good corporate governance lies with effective functioning of the board of directors. The committee should have minimum three members all being non executive directors with ma'ority being independent and at least one director having financial and accounting knowledge. the governance process should ensure that these resources are utili)ed in a manner that meets stakeholders aspirations and societal expectations. long term plans. 8. 0oard of "irectors There should be a combination of executive and non executive directors. 6. !ecommendations of 3irla /ommittee: 2. multiple credit ratings are obtained. /<< /ode of Desira2le /orporate (overnance: 2. The non executive directors should at least be 4BC of the board. 3. quarterly divisional results and internal audit reports. 4. debenture holders and shareholders. all the ratings should be disclosed with comparisions explaining their significance. c. The board should be informed of the operating plans and budgets. Ma'or $ndian stock exchanges should gradually insist upon compliance certificate signed by #!1 and #. Thus. 9ince large corporate employs a vast quantum of societal resources. The board should consist of not less than 4BC of non executive directors. Audit #ommittee a. 13 . b. 2B. :owers of the audit committee The audit committee should look into the rasons for substantial default to depositors. $ncase. This freedom of management should be exercised within a framework of effective accountability. cash flow statement. Management must have excutive freedom to drive the enterprese forward without undue restraints. have defined responsibiity and be conversant with profit and loss account.1 clearly stating that accounting policies and standards have been followed. >. The company secretary should act as secretary of the committee. The board should appoint a qualified and independent audit committee. #orporate Governance can be defined as a systematic process by which companies are directed and controlled to enhance their wealth generating capacity. #ompanies that default on fixed deposits should not be permitted to accept further deposits. balance sheet. "irectors who have not been present for at least 6BC of the board meetings should not be reappointed. 22. head of internal audit and representatives of external auditor for committee meetings. 4. make intercorporate loans or investments and declare dividens until the default is made good. Fon executive directors must be active.in #orporate Governance appointed by the 9ecurities and !xchange 0oard of $ndia %9!0$& the recommendations were accepted by 9!0$ in "ecember 2>>> and are now enshrined in #lause 5> of the Iisting Agreement of every $ndian stock exchange. The chairman should invite finance director.

to the company. bonuses. "isclosures of accounting treatment with explanation c. Fumber of 0oard of "irectors meetings held. 0oard of "irectors a.emuneration policy e. General 0ody Meetings a. The board of directors should decide remuneration of non executive directors. =hether any special resolution passed last year through postal ballot c. b. name of members and chairperson c. 7. where last three AGM+s held b. 0rief description of terms of reference b. should be disclosed. Iocation and time. penalties imposed on company by stock exchange or 9!0$ or any statutory authority on any matter relating to capital markets. d. 3. 5. #omposition. dates on which held. Iist of items to be included in the report on #orporate Governance 2. 9hareholders #ommittee a. 0rief description of terms of reference b. 7. as per format in main report. 9hareholders committee This committee would be framed to attend to shareholders grievances and board of directors should delegete power of checking share transfer to either officer or committee or to registrar and share transfer agent. 6. 6. Fumber of pending complaints. #ommittee membership of directos "irectors should not be members of more than ten committees and chairman of not more than 6 committees. .5. d. 8. b. All elements of the package inclusive of salary benefits. Fame and designation of compliance officer c. 4. Juorum should be either two members or 2?4rd of audit committee. Meetings and attendance during the year.emuneration #ommittee a. "etails of non compliance by the company. #omposition and category of directors b. A brief statement on companies philosophy on code of governance. Fame of non executive director heading the committee b. stock options. Attendance during the year d. etc. which ever is higher.requency of the meetings and quorum The committee should meet at least thrice a year. :rocedure of postal ballot 8. name of members and chairperson c. Fumber of shareholders complaints received so far. "irectors need to disclose about their membership with other committees. . Attendance of each director at the 0oard of "irectors meetings and the last Annual General Meeting c. #omposition. Means of communication 14 . once before finali)ation of annual accounts and once compulsority every 7 months. Fumber of other 0oard of "irectors or 0oard #ommittees in which he?she is a member. Audit #ommittee a. @. e. . :erson who conducted the postal ballot exercise d.emuneration of non executive directors a. "isclosures on materially significan related party transactions that may have potential conflict with the interests of company at large. "isclosures a. "etails of remuneration to all the directors. Fumber not solved to the satisfaction of shareholders. .

where displayed e. a. #.a. Iisting on stock exchanges f. =hether it also displays official news releases f. "istribution of shareholding d. . Market price data 2B. Any website. :erformance in comparision to broad based indices such as 09! 9ensex. time. AGM date.egistrar and Transfer Agents b. d. Juarterly results c. venue b. 9hare transfer system c. 9tock code g. :lant locations f. "ividend payment date e.inancial calander c.$9$I. etc. "ate of book closure d. Aalf yearly report sent to each household of shareholder b. The presentations made to institutional investors or to the analysts >. General shareholder information a. Fewspapers wherein results normally published. Address for correspondence 15 . . "emateriali)ation of shares and liquidity e.

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