Corporate Mergers and Acquisitions-Key Aspects

Key Legal Steps in M&A

1. Non-Disclosure Agreement (NDA): The first step is to protect sensitive company information. Both the buyer and seller sign an NDA, which is basically a promise not to share each other’s confidential details with outsiders.

2. Letter of Intent (LOI): Next, the companies sign a letter of intent. This is not legally binding but shows the buyer’s interest and outlines the broad terms of the deal. It acts like a roadmap for negotiations.

3. Due Diligence: This is one of the most important stages. The buyer’s lawyers, accountants, and financial experts thoroughly check the target company’s finances, contracts, debts, assets, employee details, and legal compliance. The aim is to uncover any hidden problems (like unpaid taxes, lawsuits, or debts) before finalizing the deal.

4. Deal Structure: Lawyers then help decide how the deal will be carried out. Will the buyer purchase all the company’s shares, only certain assets, or merge the companies into a new entity? Sometimes, companies use borrowed money to finance the deal (called a leveraged buyout) or form a joint venture instead of a complete takeover. The deal structure determines who owns what, who takes on liabilities, and how payments will be made.

5. Representations and Warranties: These are legally binding promises made by both sides. For example, the seller might promise that their financial statements are accurate, that they own all their assets, and that there are no hidden lawsuits. If these promises turn out to be false, the buyer can cancel the deal or seek compensation.

6. Definitive Purchase Agreement (DPA): This is the final, legally binding contract that seals the deal. It replaces all previous agreements. Depending on the structure, it could be a share purchase agreement (buyer takes all shares) or an asset purchase agreement (buyer only takes specific assets). Once signed, the ownership officially changes hands.

Legal Framework for M&A in India

In India, M&A deals are mainly governed by the Companies Act, along with oversight from regulatory authorities:

1. Companies Act, 2013: It lays down the procedure for mergers, including approvals from boards of directors, shareholders at least 70% and they should be present and voting and regulators.

2. Competition Act, 2002: It ensures fair play in the market, stops companies from secretly fixing prices, limiting supply, or dividing markets, and prevents big firms from misusing their power. The Competition Commission of India (CCI) acts as the watchdog- before any merger or acquisition, it checks whether the deal will hurt competition. If it gives one company unfair dominance, CCI can block or modify the deal.

3. Securities and Exchange Board of India (SEBI): SEBI makes sure listed companies provide full disclosure to investors about the deal- the terms and conditions, valuation, its risks, benefits, and conditions- so everything stays transparent.

4. National Company Law Tribunal (NCLT): NCLT gives the final legal approval for mergers and ensures compliance with the law.

Recent Amendments

In 2023, the Competition Act, 2002, was amended to introduce a deal value threshold for combinations. Any transaction exceeding Rs. 2,000 crores in value of assets or turnover now requires mandatory scrutiny by the Competition Commission of India (CCI). The approval period has been shortened to 150 days, and the definition of “control” has been expanded to cover more situations.

Conclusion

The legal side of M&A is all about protecting interests and ensuring fairness. Every step- from signing NDAs to getting regulatory approvals- is designed to reduce risk, avoid fraud, and keep the market healthy.

How to Contact Corpsage Legal LLP?

To connect with us for contract management services for your business, follow any of the below-mentioned ways:

1. Email: Send us an email with your specific requirements for corpsagelegal@gmail.com
2. Mobile: Call us at (+91) 8383943889 
3. Online Form: Fill out the complete form available at https://corpsagelegal.com/contact/