INFORMATION ABOUT DEMERGER

1. DEMERGER
PRESENTED BY-
MOHAMMED SHAHID S. GAJIAWALA
ROLLNO:- 55
3RD YEAR BA.LLB(HONS)

2. DEFINING DEMERGER
• The act of splitting off a part of an existing company
to become a new company, which operates
completely separate from the original company.
• Shareholders of the original company are usually
given an equivalent stake of ownership in the new
company.
• A demerger is often done to help each of the segments
operate more smoothly, as they can now focus on a
more specific task. opposite of merger.

3. • It has been defined as a split or division. As the same
suggest, it denotes a situation opposite to that merger.
Demerger or spin-off, as called in US involves splitting
up of conglomerate (multi-division) of company into
separate companies.
• It occurs in cases where dissimilar business are carried
on within the same company, thus becoming unwieldy
and cyclical almost resulting in a loss situation.
Corporate restructuring in such situation in the form of
demerger become inevitable.
• Merger of SG chemical and Dyes Ltd. With Ambalal
Sarabhai Enterprises Ltd.(ASE) has made ASE big
conglomerate which had become unwieldy and cyclic,
so demerger of ASE was done.

4. • Apart from core competencies being main reason for
demerging companies according to their nature of
business, in some cases, restructuring in the form of
demerger was undertaken for splitting up the family
owned large business empires into similar
companies.
• The historical demerger of DCM group where it split
into four companies (DCM Ltd, DCM shriram
industries Ltd, Shriram Industrial Enterprise Ltd. And
DCM shriram consolidated Ltd.) is one example of
family unit splitting through demergers. Such demergers
are accordingly, more in the nature of family settlement
and are affected through the courts order.

5. • Thus, demerger also occur due to reasons almost
the same as mergers i.e. the desire to perform better
and strengthen efficiency, business interest and
longevity and to curb losses, wastage and
competition.
• Undertakings demerge to delineate business and
fix responsibility, liability and management so as to
ensure improved results from each of the demerged
unit.
• Demerged Company, according to Section
2(19AA) of Income Tax Act, 1961 means company
whose undertaking is transferred, pursuant to a
demerger to a resulting company.

6. Demerger under The Companies Act, 1956
• The expression demerger is not expressly defined in The
Companies Act, 1956.
• However, it is under the Expression “arrangement” as defined
in clause(b) of section 390 of The Companies Act, 1956.
 “arrangement” includes a re-organisation of the share
capital of the Company by the consolidation of share of
different classes or, by the division of the shares into
different classes or, by both these methods. Such
divisions may take place for various reasons internal
or external. Internal factors are generally a split in
family rather than lack of competence on the part of
management.

7. Thank You…