Acquisition

An ‘acquisition’ or ‘takeover’ is the purchase by one person, of controlling interest in the share capital,
or all or substantially all of the assets and/or liabilities, of the target.

Acquisition: Taking possession of another business. Also called a takeover or buyout. It may be
share purchase (the buyer buys the shares of the target company from the shareholders of the
target company. The buyer will take on the company with all its assets and liabilities. ) or asset
purchase (buyer buys the assets of the target company from the target company)

Limits on acquirer- Section 186 of CA 2013 provides for certain limits on inter-corporate loans and
investments. An acquirer that is an Indian company might acquire by way of subscription, purchase or
otherwise, the securities of any other body corporate upto (i) 60% of the acquirer’s paid up share capital
and free reserves and securities premium, or (ii) 100% of its free reserves and securities premium
account, whichever is higher. However, the acquirer is permitted to acquire shares beyond such limits, if
it is authorized by its shareholders vide a special resolution passed in a general meeting.

An important consideration for these options is the statutory costs involved i.e. stamp duty, tax
implications etc. We have delved into this in brief in our chapter on ‘Taxes and Duties’

Capital Gains Tax Implications for transfer of shares

LTCG tax and STCG tax on Transfer of shares

Moreover, in case shares of any company are transferred to a resident company or partnership firm or if
shares of an Indian company are transferred to a non-resident company or partnership firm at a price
which is below the ‘fair market value’80 , the transferee would be subject to tax under the head ‘income
from other sources’ under the ITA and the difference between the consideration and the fair market value
would be added to its gross total income and taxed at applicable rates.

Capital Gains Tax Implications for a Slump Sale