SPA

 A share swap arrangement signifies issuance of a share in exchange for a share rather than
remittance of cash consideration. Share Swap arrangements occur when shareholders' ownership
of the target company's shares is exchanged for shares of the acquiring company as part of any
restructuring - The acceptance of stocks as currency for such acquisitions is well established, as
Disney’s $71 billion acquisition in the US of the entertainment assets of 21st Century Fox
demonstrates. Tax benefits - The IT law does not consider the swap of shares as a transfer,
ensuring that it is tax-neutral for shareholders.

 Consideration - One form of deferred payments is that of the escrow arrangement; another may
be through a predetermined time based schedule of payments; and another by structuring earn-
outs - An earnout is a risk allocation mechanism for the acquirer wherein the purchase price is
contingent on the “future performance” of the target company. The acquirer pays a majority of the
purchase price upfront, at the time of closing the deal, and the remainder is contingent on the
performance of the target. For example, if the seller thinks the business is worth $100 million and
the acquirer believes it is worth $70 million, they can agree on an initial price of $70 million and
the remaining $30 million can form part of the earnout. The $30 million may be contingent on
factors such as revenue, EBITDA margins, earnings per share, or retention of key employees.

 R&W – representation is a statement of fact relating to an existing or past event based on which
an acquirer is induced into entering the contract (backward looking), while a warranty is an
assurance of the continued existence of a certain state (forward looking).

 Indemnity vs. Damages

Indemnity is defined under Section 124 of the Contracts Act as a contract by which one party
promises to save the other from loss caused to him by the conduct of the promisor himself, or by
the conduct of any other person. Damages are governed by Section 73 (unliquidated damages)
and Section 74 (liquidated damages) of the Contracts Act. Indemnity, under the Indian Law, is a
separate contract and thus, differs from damages in the following manner:

 There is no requirement to show actual losses for an indemnity claim. Indemnity can be
successfully claimed as soon as the liability of the indemnified party becomes absolute, even
before actual loss has been incurred (as held in Gajanan Moreshwar Parelkar v. Moreshwar
Madan Mantri (1942) 44 BomLR 704).

 Third party claims are covered under an indemnity whereas damages can only be claimed against
the promisor or the party who has made a promise under the contract.

 Consequential, indirect and remote losses can all be claimed under an indemnity clause whereas
the same is not sustainable under a damage claim. Do note that in most negotiations,
consequential, indirect and remote losses end up being explicitly excluded on the grounds that
they are not statutorily available in the context of damages (and this being largely market).
However, the argument stated above may be used to resist this if necessary.
 Indemnity can be claimed for losses without demonstrating that the loss has arisen on account of
breach of contract event whereas for damages, a clear connection and sufficient nexus between
the breach of contract event and damage suffered has to be demonstrated. This requirement can
be diluted by using phrases such as ‘in connection with’ or ‘arising from’).

 While this clause is very Investor-friendly, the Company will typically insist on inclusion of
limitations on indemnity claims by (i) setting time limits for raising a claim with respect to
various representations; and (ii) a minimum monetary threshold for admission of a claim. The
Company may also want the introduction of the concept of “indemnity basket” and a cap on the
aggregate amount that can be claimed by the Investor as indemnification. There are two types of
indemnity baskets: deductible baskets and tipping basket. A tipping basket provides that once the
buyer has incurred losses equal to the agreed amount, the buyer is entitled to full recovery of all
losses, from the first rupee of losses. On the other hand, a deductible basket provides for recovery
only to the extent that losses exceed the pre-determined deductible amount. It is also common for
anti-sandbagging provisions to appear in the indemnity clause, wherein the exercise of right to
indemnity is qualified by the knowledge of the Investor.

 An anti-sandbagging provision prohibits the buyer from bringing an indemnification claim

based on an inaccuracy or breach of a representation or warranty, that the buyer knew about
before the Closing, and chose to proceed and close the transaction despite the inaccuracy or
breach of the representation. An anti-sandbagging aligns closely to the Indian law position –
exception to section 19 of the ICA provides that if consent to a contract is caused by
misrepresentation or fraudulent, the contract would not be voidable if the relevant party had the
means of discovering the truth with ordinary diligence. Therefore, during the DD exercise, the
acquirer poses broad questions about the target and if the seller does not provide adequate
disclosures, it is easier for acquirer to bring this active concealment of fact within the realm of
fraud under section 17 of the ICA and the acquirer may not be required to prove that it had no
means of discovering the truth with ordinary diligence.

 It is important to avoid the usage of the term “compensate” as the courts may strictly interpret it
as covering claims arising only due to actual loss suffered by the indemnified party and not cover
cases where the liability has accrued but no payment has been made. Hence, it is advisable to use
the terms “hold harmless” and (not or) “make good” which are defensive and cover both
situations.

 It is important to use broad phraseology while drafting an indemnity clause. Phrases such as
“caused by” or “as a result of” should be avoided or should be coupled with “arising from”. It has
been held in Samways v. WorkCover Queensland and Ors ([2010] QSC 127) that the usage of
“arising from” requires weak causal relationship.

 Duty to mitigate is covered under section 73 of the ICA – the means which existed of remedying
the inconvenience caused by the non-performance of the contract would be taken into account for
estimating damages.

 Non-compete – agreements restricting trade void under section 27 of the ICA – however, if
restrictions are reasonable, they may be enforced – to remove any ambiguity, (i) a period of
 validity of such restriction should be expressly provided and (ii) the scope of activities restricted
under the agreement should be clearly specified.

 Inbound and outbound M&A - An inbound merger or acquisition is a transaction in which a

foreign company merges with or acquires a domestic company. In an outbound merger or
acquisition, a domestic company acquires or merges with a foreign company.

 Doctrine of severability, or the “Blue Pencil Rule”

BTA
Slump sale is defined under the Income Tax Act as a transfer of business undertaking, for a lump
sum consideration without values being assigned to the individual assets and liabilities in such
sales.

Advantages of business transfer over asset sale

One of the biggest advantages of slump sale over an asset sale is its tax treatment for the seller.
Since individual values are assigned to each of the assets in an asset transfer, capital gains arising
from the sale of assets will also be ascertained for each asset separately. Therefore, depending
upon the holding period for each asset there could be short term or long term capital gains on
each asset.
In case of a business transfer, any undertaking that has been held by the seller for more than 36
months shall be deemed to be a long-term capital asset irrespective of how long the individual
assets in the undertaking have been held by the seller. Accordingly, the entire profits or gains
arising from the business transfer shall be subject to long-term capital gains tax at the rate of 20%
if the undertaking has been held by the seller for more than 36 months.

Only if the undertaking has been held for not more than 36 months by the seller will the profits or
gains arising from the business transfer be subject to short-term capital gains at rate of 30% in
case of domestic companies and 40% in case of foreign companies.

Negative of slump sale: One of the downsides of a slump sale as against an asset sale is the risk
of successor liability in case of slump sale as against asset sale, since in case of a slump sale, the
assumption is that the undertaking is being transferred together with all attendant assets and
liabilities.

Consideration - Payment of consideration in kind also qualifies as slump sale: the Finance Act,
2021 amended the definition of ‘slump sale’ under the ITA replacing the words “undertaking as a
result of sale” with “undertaking, by any means” in the definition of slump sale.

Undertaking - The transferred undertaking should represent an identifiable stand-alone business

activity and should contain all the assets and liabilities including employees, contracts and
licenses that are required for conducting such business.
 Relaxation in restriction on cherry-picking of assets and liabilities: Case laws indicate that
exclusion of certain assets and liabilities should be permitted so long as the assets and liabilities
transferred as part of the undertaking are sufficient for conducting the business and generating
sustainable revenue on its own on a standalone basis.

Going concern: The transfer of the undertaking from the seller and the vesting of the undertaking
in the buyer together with all the assets and liabilities should be simultaneous and it should not
stop, hinder or break the conduct of the business.

Stamp duty calculation: The determination of the value of an asset or liability for the sole
purpose of payment of stamp duty, registration fees or other similar taxes or fees shall not be
regarded as assignment of values to individual assets or liabilities.

Certificate under section 281 of IT Act: Section 281 of the ITA imposes an overriding charge on
an assessee’s assets for all pending income tax dues, whether crystallized or not. Any assessee
wishing to transfer any assets covered by Section 281 of the ITA, must first obtain permission
from the income tax department (assessing officer) to do the aforesaid. The object of this
provision is to prevent taxpayers from encumbering or selling off their assets in order to avoid
paying taxes.

 ASB v BTA - The Agreement is drafted as an ASB rather than a BTA to avoid stamp duty
implications of the agreement being treated as a deed of conveyance. Bottomline is that the
stamp duty is applicable to an instrument and not a transaction. ASB is basically an agreement
to agree which lays down various action items to be undertaken by the parties. For instance, an
ASB may provide that the parties shall enter into a sale deed for transfer of certain immovable
property. In this case, the stamp duty will be payable on the sale deed and not on the agreement
itself which merely records the obligation of the parties to enter into such a sale deed and does
not record any transfer as such.

 Restriction on non-resident: Under the Indian exchange control regulations, a non-resident entity
is not permitted to conduct business operations in India without having a place of business in
India. On account of this restriction, it would not be possible for a non-resident to directly acquire
an Indian business undertaking. Typically, the non-resident incorporates a company or a limited
liability partnership for undertaking the business transfer if the acquirer does not already have any
presence in India.
SSA

 Difference between SPA and SSA - SSA deals with New Subscription whereas the SPA deals
with Existing Shares. Further, the funds are transferred to the account of Seller (Exiting
Shareholder/ Promoter) in case of an SPA while it transferred to the Company in case of an SSA.
 A share subscription agreement sets out the terms on which an investor agrees to buy shares
from a private company.
SHA
 An SHA seeks to regulate the relationship between the shareholders and the company itself. It
typically lays down various commercial rights, management rights and exit rights available to the
shareholders.
 An investor may or may not be involved in the day-to-day functioning of the company. Hence, in
order to safeguard the value of the investment that has been made in the company, it is judicious
and advisable to enter into an SHA.

 Voting rights in CCDs / CCPs - To overcome the issue relating to enforceability of voting rights
on CCDs, this draft contemplates issuance of a nominal number of equity shares with differential
voting rights to the Investor along with CCDs / CCPS, which would enable the Investor to
exercise voting rights commensurate with its shareholding in the Company (on a Fully Diluted
Basis). Please refer to endnote ‘zzz’ in relation to voting rights associated with CCDs / CCPS.

Section 43 of the Act permits companies to issue two kinds of share capital: (a) equity share
capital with voting rights or with differential rights as to dividend, voting or otherwise; and (b)
preference share capital.

Rule 4 of the Companies (Share Capital and Debentures) Rules, 2014 lays down the following
conditions for the issue of equity shares with differential voting rights:

 the voting power in respect of shares with differential rights of a company shall not exceed
74% (seventy four percent) of total voting power including voting power in respect of equity
shares with differential rights issued at any point of time;
 the company shall have obtained the approval of shareholders in a general meeting by passing
an ordinary resolution;
 in the event the equity shares of the company are listed on a recognized stock exchange, the
issue of such shares shall be approved by postal ballot;
 the company shall not have defaulted in filing financial statements and annual returns for the
last 3 (three) financial years immediately preceding the financial year in which it was decided
to issue such shares;
 the Company shall not have defaulted in payment of declared dividend to its shareholders or
repayment of its matured deposits;
 the Company shall not have defaulted in redemption of its preference shares / debentures that
have become due for redemption;
 additionally, the company shall not have defaulted in repayment of any term loan from public
financial institutions or state level financial institutions or scheduled banks that has become
repayable;
 no default in payment of any statutory dues relating to employees shall have been made; and
 the company shall not have converted its existing equity share capital with voting rights into
equity share capital carrying differential voting rights and vice versa.

 Zzz - Section 71 of the Act permits a company to issue convertible debentures. However, the
provision also states that debentures carrying voting rights shall not be issued by a company.
Recently, the Income Tax Appellate Tribunal, Bangalore bench, in CAE Flight Training (India)
Pvt. Ltd. (TS-440-ITAT-2019 (Bang)), held that interest on debentures paid during the pre-
conversion period is tax-deductible. The Tribunal also observed that compulsorily convertible
 debentures are debt and not equity, and that the RBI’s characterisation of CCDs as equity
instruments cannot be used for tax purposes. The tribunal also held that no voting rights can be
provided on CCDs before conversion.

Section 47 of the Act, read with Section 43, provides that voting rights can be granted on only
equity share capital (i.e., all share capital which is not preference share capital).

Section 47 also states that preference shareholders can be given voting rights only on resolutions
that deal with matters affecting their rights, or on resolutions in relation to winding up of a
company.
As per the notification issued by the MCA in June, 2015, the applicability of Sections 43 and 47
can be excluded by private companies, if their memorandum or articles of association so provide.
Consequently, a private company is free to provide voting rights on its preference shares.

 Number of directors: Section 149(1) of the Act states that a public company is required to have a
minimum of three directors while a private company is required to have a minimum of two
directors. The maximum number of directors in a company can be 15, subject to a special
resolution increasing such number. As per Rule 3 of the Companies (Appointment and
Qualification of Directors) Rules, 2014, listed and other specified companies are required to have
at least one woman director on the board.

 Investor directors would typically be appointed as non-executive directors to the board of a

company, primarily for two reasons: (a) Investor directors would typically not be involved in the
day-to-day affairs of the target company; and (b) non-executive directors have a relatively lower
threshold of liability, as compared to executive directors.

 Indemnification of directors - Section 201 of the Companies Act, 1956 allowed the company to
indemnify its directors only in respect of liability incurred by them in defending any proceedings,
whether civil or criminal, in which judgment is given in their favour or in which they are
acquitted or discharged. While there is no similar provision in the Act, Table F of Schedule I
stipulates indemnity to company’s officers against any liability incurred by them in defending any
proceedings, whether civil or criminal, in which judgment is given in their favour or in which
they are acquitted or in which relief is granted to them by the court or the Tribunal. This clause
seeks to amend the provision under Table F by providing for a wider indemnification obligation
towards the Investor Director and Investor Observer.

 Restrictions on transferability of shares - In V.B. Rangaraj v. V.B. Gopalkrishnan ((1992) 1

SCC 160), the Supreme Court took the view that the provisions of a shareholders’ agreement
imposing restrictions on transfer of shares even if found to be in accordance with provisions of
the Act, are enforceable only when they are incorporated in the articles of association of the
company. In this case, the question was whether the shareholders could enter into an agreement
among themselves that is contrary to or inconsistent with the articles of the company. In the case
of Vodafone International Holdings BV v. Union of India ((2012) 6 SCC 613) the Supreme Court
held that shareholders could enter into any arrangement in the best interests of the company, as
long the provisions of shareholders’ agreement were not contrary to the articles of the company.
Further it held that in the event of breach of terms of shareholders’ agreement (which were not
 breach of terms of articles), the aggrieved shareholder could pursue legal action as per the law of
the land.

Section 58(2) of the Act specifically states that securities or other interest of a member in a public
company shall be freely transferable provided that any contract or arrangement between two or
more persons in respect of transfer of securities shall be enforceable as a contract. Therefore, a
shareholders’ agreement between two or more members of a public company would be
enforceable.

Angel investors and venture capitalists invest in startups, and PE funds target established
companies with stable cash flows. Angels and VCs only seek a minority position in the company.
Control is still in the hands of the founders. In contrast, a PE buyout seeks a controlling interest.
Different types of funding:
Pre-seed funding - Pre-seed funding is the earliest stage of financing for a startup, typically occurring in
the ideation or concept stage before the startup has developed a minimum viable product or generated any
revenue. Not considered as an ‘official’ funding
Seed funding - Seed stage funding is the first formal round of financing for a startup, typically occurring
once the company has developed a minimum viable product, demonstrated some traction, and has a clear
plan to grow its business.
Series A - Series A funding is the second round of financing for a startup, typically occurring once the
company has proven its business model and has demonstrated early revenue growth.
Series B - Series B funding is the third round of financing for a startup, typically occurring once the
company has achieved significant growth, demonstrated product-market fit, and has a clear path to
profitability.
Series C - Series C funding is the fourth round of financing for a startup, typically occurring once the
company has achieved significant traction, established a clear market position, and has a plan to continue
scaling its operations.
Series D - Series D funding is the fifth round of financing for a startup, typically occurring once the
company has reached a level of maturity and is looking to achieve specific goals, such as expanding into
new markets, launching new products or services, or preparing for an IPO.
Most PE investments in India occur in closely held unlisted companies. PE investments in listed
companies are less frequent for a number of reasons, including the limited extent to which PE investors
may seek enforcement of shareholder rights customarily sought in such transactions.
Oher important stuff
Bonus shares – issuance of additional shares to existing shareholders
Share Capital

 Share capital is referred to as the capital that is raised by the company by issuing shares to
investors.
  Share capital is of two types namely, equity share capital and preference share capital.

Equity Shares Preference Shares

Definition Equity shares are ordinary shares of a Preference shares are ones that carry
company that represent ownership of preferential rights in terms of dividend
the company. payment and repayment of capital.

Rate of In the case of equity shares, the Preference shareholders receive dividends
Dividends dividend rate is not fixed. The board of at a fixed rate predefined at a standard
directors decide dividend rates for share price value.
equity shareholders after analysing the
company's performance in the past
financial year.

Bonus Shares Equity shareholders are entitled to Preference shareholders are not entitled to
receive bonus stocks from the receive bonus shares.
company.

Redemption Equity stocks cannot be redeemed Preference shares can be redeemed after a
throughout the company’s lifetime. certain period or after the company
successfully achieves desired goals.

Capital Equity shareholders receive capital Preference shareholders receive their

Repayment repayment at the time of liquidation of capital repayment before equity
the company and are the last ones to shareholders.
receive it.

Risk Equity shareholders are at high risk in In comparison to equity shareholders, the
comparison to preference shares. risk is low in the case of preference
shareholders.

Role in Equity shareholders are part owners Preference shareholders do not enjoy any
Management and have the right to participate in advantage in terms of role in management.
company management.

Convertibility Equity shares cannot be converted into Preference shares are convertible and can
preference shares. be converted into equity shares.

Cost Lower costs of equity shares make The price range of preference shares is
them easily accessible to any investor, higher, making them accessible only to
specifically small investors. medium and large investors.

Arrears of Equity shareholders cannot claim Preference shareholders can avail arrears
Dividend arrears of dividends. of dividends along with dividends of the
current year.

Capitalisation In the case of equity shares, there is a Preference shares have a relatively lesser
high chance of over-capitalisation. chance of over-capitalisation.
 Financing Equity shares serve as means for long- Preference shares serve as means for mid-
Terms term financing. term and long-term financing.

Investment Equity shares have lower Most preference shares come with high
Denomination denominations. denominations.

Mandate to It is mandatory for companies to issue It is not mandatory for every company to
Issue equity share capital. issue preference share capital.

Financing Payment of equity dividends is optional Payment of preferred dividends is an

Burden and depends on the company's profit. obligation for the company.

 “Fully Diluted Basis” means that the calculation should be made in relation to the equity share
capital, assuming that all (i) outstanding convertible preference shares or debentures, other
securities convertible into equity shares of the Company, have been so converted; and (ii) partly
paid securities have been fully paid up.

DD Issues:
Corporate and Secretarial

 Objects clause in Articles – The objects clause in the articles should provide for acquisitions or
sale of the business activity / company shares.
 Appropriate stamp duty on all the share certificates
 How CSR has been done and how the amount that has been earmarked for the same actually
utilized by the Company?
 Appointment of internal auditors.
 Appointment of key managerial personnel including CFO.
 Going through minutes of meetings of the BOD and shareholders meeting and committees
meeting to find out anything unusual.
 We note from the Form MGT-7 that the Company defaulted in holding the AGM and filing Form
MGT-7 and Form AOC-4 within the prescribed timelines – at least 1 AGM in a financial year.
 Director related compliances - copies of (a) the latest annual disclosures of interest received from
the current directors of the Company under Companies Act, 2013 (in Form MBP-1) and (b) the
latest DIR-8 received from the current directors declaring that there are not disqualified from
being appointed as director.
 Please provide us with copies of all statutory registers required to be maintained by the Company
under the Companies Act, 2013 including the following as may be applicable: (a) register of
members, (b) register of debenture holders, (g) registers of sweat equity shares (Sweat equity
shares are shares that a company issues to its employees, directors or other service providers in
exchange for their non-monetary contributions to the company, such as their time, effort or
intellectual property), (h) registers of ESOPs, (i) registers of securities bought back, (j) registers
of deposits, (k) registers of charges, (l) registers of directors & key managerial personnel (KMP)
and their shareholding, (m) registers of loan & guarantee, (n) registers of investments of the
company not held in its own name, and (o) registers of contracts & arrangements in which
directors are interested.
  The following are the vital document that are considered Statutory Registers:

 Members’ registers (MGT-1)

 Debenture holders’ register (MGT-2)
 Registers enclosing detail of Directors and KMP
 Register of Sweat Equity Shares (SH-3)
 Register of charge (CHG-7)
 Register of shares & other securities buyback by the company (SH-10)
 Register of loan/security/guarantee/or securities’ acquisition (MBP-2)
 Register concerning the company’s investment not held in its name (MBP-3)
 Register concerning the contracts and arrangements in which company’s director(s) have
keen interest (MBP-4).
 Please provide us with copies of the following statutory registers and records required to be
maintained by the Company for the Review Period, along with a confirmation that these
registers are maintained up to date:
 register of loan and charges;
 register of guarantees;
 register of contracts, companies and firms in which directors are interested;
 register of members/ debenture holders;
 fixed assets register;
 register of allotment;
 register of share transfers; and
 register of employee stock-options and -
 register of loans made to the Company under the same management.

Relevant Section & Rules Register

Section 88 (1) and Rule 3 (1) of the

1. Companies (Management and MGT-1: Register of Members
Administration) Rules, 2014

Section 88 (1) and Rule 4 of the

2. Companies (Management and MGT-2: Register of Debenture holders
Administration) Rules, 2014

Section 88 (2) and Rule 6 of the

3. Companies (Management and Index of Members
Administration) Rules, 2014

4. Section 88 (2) Index of Debenture Holders

5. Section 88(3) Register and Index of Beneficial Owner

Section 88(4) and Rule 7 of the Companies MGT-3: Foreign Register of Members, Debenture
6. (Management and Administration) Rules, holders, other security holders or beneficial owners
2014 residing outside India

7. Rule 6 of the Companies (Share Capital Form SH-2: Register of Renewed and Duplicate Share
 and Debentures) Rules, 2014 Certificate

Section 54 and Rule 8 (14) of the

8. Companies (Share Capital and Debentures) Form SH-3: Register of Sweat Equity Shares
Rules, 2014

9. Section 62 and Rule 12 (10) Form SH-6: Register of Employee Stock Options

Section 68 and Rule 17 (12) of the

Form SH-10: Register of Shares or Securities Bought
10. Companies (Share Capital and Debentures)
Back
Rules, 2014

Section 170(1) and Rule 17 of the

11. Companies (Appointment and Register of Directors and KMPs
Qualification of Directors) Rules, 2014

Section 73 and Rule 14 of the Companies

12. Register of Deposits
(Acceptance of Deposits) Rules, 2014

Section 85 and Rule 7 of the Companies

13. Form CH-7: Register of Charges
(Registration of Charges) Rules, 2014

Section 186 and Rule 12 of the Companies

Form MBP-2: Register of Loans/Guarantee/Security and
14. (Meeting of Board and its Powers) Rules,
Acquisition by Company
2014

Section 187 and Rule 14 of the Companies

Form MBP-3: Register of Investments not held in its
15. (Meeting of Board and its Powers) Rules,
own name
2014

Section 189 and Rule 16 of the Companies

Form MBP-4: Register of Contracts or Arrangements in
16. (Meeting of Board and its Powers) Rules,
which Directors are interested
2014
Following are some of the important committees to be constituted by the Board:
1. Audit Committee:
Applicability: Every Listed Public Companies and Public Companies having a Paid-up share capital of 10
crore rupees or more, and a turnover of Rs. 100 Crore or more. Additionally All Public Companies which
have in aggregate outstanding loans, debentures and deposits exceeding 50 crore rupees are required to
constitute an Audit Committee.
Penalty for the Violation of Audit Committee Provisions: The Company shall be punishable with a fine of
Rs. 1 lakh to Rs. 5 lakh and every officer of the company who is in default shall be punishable with
imprisonment upto 1 year or with Rs. 25,000 to Rs. 1 lakh or with both.
Function of Audit Committee: To recommend appointment, remuneration and terms of appointment of the
Auditor of the Company. To establish a Vigil Mechanism Policy to encourage the employees and directors
of the corporation to come forward and express their suspected misconduct concerns without fear of
punishment or unfair treatment. To call for remarks of the auditors about the internal control system. At
the Annual General Meeting, the chairman of the Committee should be present to answer the
shareholder’s inquiry. To discuss any issues related to internal and statutory auditors and the management
of the Company.
2. Nomination and Remuneration Committee:
Applicability: Every Listed Public Companies and Public Companies having a Paid-up share capital of 10
crore rupees or more, and a turnover of Rs. 100 Crore or more. Additionally All Public Companies which
have in aggregate outstanding loans, debentures and deposits exceeding 50 crore rupees are required to
constitute an Audit Committee.
Functions of Nomination and Remuneration Committee: Recommendation of success plans for the
directors. To review the elements of the remuneration package, structure of remuneration package. To
review the changes to remuneration package, terms of appointment, severance fee, requirement and
termination policies and procedures. To recommend the shortlisted candidates who are qualified to be
director and who can be appointment in senior management. The committee is authorised to seek
information about any employee and the management is directed to co-operate. The Committee can be
present at the General Meeting to answer the shareholder’s queries.
3. Stakeholders Relationship Committee: Section 178 of Companies Act,2013 states that a company
which holds 1000 numbers of shareholders, debenture holders, deposit holders and any other security
holders at any time during a financial year.
Functions of Corporate Stakeholders Relationship Committee: The Committee shall resolve complaints
related to transfer/transmission of shares, non-receipt of annual report and non-receipt of declared
dividends, general meetings, approve issue of new/ duplicate certificates and new certificate on
split/consolidation/ renewal etc. approve transfer/transmission, dematerialization.
4. Corporate Social Responsibility Committee: Section 135 of Companies Act,2013 , with
Companies(CSR Policy) Rules,2014 states that every company having : net worth of not less than Rs.500
crores or more or turnover of not less than Rs. 1000 crores or more Or Net Profit of Rs.5 crore or more
shall constitute a Corporate Social Responsibility Committee. (2% of the average net profits made during
the preceding three years).
Functions of Corporate Social Responsibility Committee: To suggest and devise a CSR Policy according
to the Schedule VII of Companies Act, 2013 to the board. To recommend the amount of expenditure of
the devised policy above. To monitor the CSR Policy of company from time to time and prepare a
transparent monitoring mechanism. Institution of a transparent monitoring mechanism for implementation
of the CSR projects or programs or activities undertaken by the company.

Financing and Indebtedness

Analysis b/w share purchase and business transfer:
 SPA Business Transfer Asset Transfer
Employees There is no transfer of In slump sale, employees Except the case where the
employees. Employees get transferred to the new acquirer is interested in
remain the same, only they acquirer who will Target Company’s
will be working under the continue their work in the employees along with
arms of the acquirer same business under the other assets, there shall
arm of the new acquirer. not be any transfer of
However, before such employees to the acquirer.
transfer, employees will Employees of the Target
be required to give Company will continue to
consent on such transfer. work under the same.
If they don’t give such
consent, they will be
entitled to retrenchment
compensation under
section 25 FF of
Industrial Disputes Act,
1947
Liabilities Under a share sale On the other hand, under an asset purchase transaction,
transaction, the buyer takes only specific business activity and related assets and/or
over a company that will employees which the buyer agrees to purchase are
include all of its assets, acquired and everything else stays with the company.
liabilities and obligations The buyer can cherry-pick the assets the buyer wants.
and consequently any This limits the buyer’s exposure to legal and financial
inherent or historic problems and/or liabilities that are large, unknown or
problems. This means that not stated by the seller. It is worth noting that the
the buyer acquires the appropriate formalities for the transfer of all assets
company “warts and all” included in the sale are required and contracts with
with all its assets, suppliers and customers do not automatically transfer
liabilities, and obligations. and will need to be assigned. This route is more
Due to this reason, a share attractive to the buyer as, other than in respect of
sale transaction is more employees, the buyer is isolated from the historic risk
attractive to the seller as it factors of the company.
offers the seller a clean
break as, after the share
sale, the seller will no
longer have any direct
responsibility for the
company, apart from the
liability that the seller owes
to the buyer under the
terms of the warranties and
indemnities agreed in the
sale and purchase
agreement.