In this blog post, Mamta Ramaswamy, a student pursuing her Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, discusses the significance of stamp duty in agreements. This article is written only for educational purposes and does not constitute a legal advice.
In this blog post, Kaushik Neogi, a student pursuing his LL.B (4th year) from Delhi Metropolitan Education, affiliated to Guru Gobind Singh Indraprastha University and a Diploma in Entrepreneurship Administration and Business Laws from NUJS, discusses the liability of joint venture partners.
In this blog post, Saurabh Kumar, Manager of the Legal and Regulatory Division of Bharti Airtel Limited, Jaipur, who is currently pursuing a Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, describes the procedure of issuing share certificates.
In this blog post, Seuj Bikash, an Advocate, presently practicing in the Gauhati High Court who is also currently pursuing a Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, analyzes the significance of the Securities Contracts (Regulation) Act,1956 in raising investments.
In this blog post, Ashok K. K. Vasudevan, the Managing Director at Festo Global Production Centre, India and a student pursuing a Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, discusses the incidents when a company issues securities to the public.
Often companies would like to sell their assets either due to a downturn or due to other strategic reasons like focusing on a new business area where the assets cannot be reused or relocation to a more profitable jurisdiction where physical transfer of existing assets is difficult or not possible. Compliances and procedure to be followed for transfer of assets are quite complex for public companies. Lawyers and other professionals who can help the clients on devising strategies and can complete the documentation of such transactions are well sought after in the industry. Directors and top CXOs can understand the business strategy, their rights and actions that they need to take to make the transaction smoothly without falling into any legal trouble.
What is asset sale/transfer?
Asset transfer is generally done through three modes:
In India, asset sale is generally done through “slump sale,” which involves the process of transferring set of assets of the company by executing a business transfer agreement in exchange for cash. The transfer agreement would regulate certain aspects including liabilities, assets, employees, licenses and contracts of the business that is being transferred. Generally, in slump sale, valuation is not done for individual component or assets, but is done only for the whole of the business undertaking/asset that is transferred.
In slump sale, the tax incentives and benefits of the existing business can be transferred to the new owner and is a more tax efficient structure that in case of asset acquisition. Transfer of assets structured as a slump sale, would be considered as “sale of business” and not as sale of goods as in the case of asset acquisition and thus VAT will not be applicable in such case, but stamp duty needs to be paid on the transfer of the value of the business rather than on the sale of individual assets. The seller of the asset will be liable for paying capital gains tax which will generally be taxed at 20% (plus surcharge and cess) for long term assets (assets held for more than 36 months) or at 30% for short term assets (assets held for less than 36 months).
Comparison between slump sale and asset acquisition
| Slump sale | Asset acquisition |
| The buyer needs to purchase the whole of the business undertaking | The buyer can pick and choose the assets it want to buy |
| Valuation is not done for individual component or assets, but is done only for the whole of the business undertaking/asset | Valuation is done for individual component or assets, but is done only for the whole of the business undertaking/asset |
| The rights of liabilities of the assets are transferred to the buyer | The rights and liabilities of the assets may or may not be transferred to the buyer as per the mutual agreement |
| The tax incentives and benefits of the existing business can be transferred to the new owner | The tax incentives and benefits of the existing business cannot be transferred to the new owner |
| VAT will not be applicable. | VAT will be applicable. |
Let us understand the procedure involved in selling/transferring the assets of a company as per Companies Act, 2013.
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How to transfer assets of a company through slump sale / asset acquisition?
Step 1: The Board of Directors must pass a resolution to the effect of sale of assets/undertaking of the company as per Section 179.
Steps applicable only for public companies where the asset in question constitutes more than 20% of the total net worth of the company or the asset/undertaking is generating more than 20% of the total income of the company in the previous financial year. (See Section 110 of the Companies Act, 2013 r/w Rule 22 of the Companies (Management and Administration) Rules, 2014).
Steps 2-4 and 6 is not required to be followed for private companies and for asset sale of public companies where the valuation of the asset is less than the before mentioned threshold. However, companies can frame their respective procedure for such asset sale within their constitutional documents of the company.
Step 2: Board of directors of every listed companies and all public companies i) with a paid up capital of INR10 crores or more; or (ii) having turnover of INR100 crores or more; or (iii) all public companies, having in aggregate, outstanding loans or borrowings or debentures or deposits exceeding INR 50 crores or more will refer to the Audit Committee for valuation of the undertaking and assets of a company (See section 177(4)(vi) of the Companies Act, 2013).
Step 3: Notice must be given to the members that the resolution for asset sale is proposed to be passed as a special resolution by way of postal ballot / electronic voting. The notice must be accompanied by an “Explanatory Statement”, pertaining to the said Resolution, mentioning the material facts concerning the item and the reasons should also be enclosed along with a Postal Ballot Form (See Section 102 of the Companies Act, 2013). Click here to download a sample notice of asset sale
Step 4: The Resolution will have to be passed by a special resolution (received through postal ballot). Vote must be received within thirty days from the date of dispatch of the notice to be considered as a valid vote.
Step 5: If the resolution is successfully passed, the Board will authorize a person to finalise and execute necessary documents including but not limited to definitive Agreements, deeds of assignment / conveyance and other ancillary documents, with effect from such date and in such manner as is decided by the Board. Click here to download Business Transfer Agreement.
Step 6: Form MGT – 14 along with the resolution and notice given under Section 102 must be filed with the ROC within 30 days along with required fees.
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Sumit Sengupta is an associate with S.N Sen and B.M Law & Co. solicitors and advocates; one of the oldest and premier law firms of Kolkata. Prior to this, he has worked with prestigious organizations like the Calcutta Stock Exchange, Thomas Cook etc. He has done his LLB from Utkal University in 2014; he is a certified chartered financial analyst from the ICFAI university, Dehradun and an MBA in finance.
He completed the NUJS Diploma in Entrepreneurship Administration and Business Laws in 2016. He had a very fulfilling experience with the course. So we decided to share it with you all as a success story. Over to Sumit.
I joined the NUJS diploma in Entrepreneurship Administration and Business Laws while I was working with the Calcutta Stock Exchange. I had already done my LLB and was looking for a course which would give me some practical insight.
I came across the NUJS Diploma in Entrepreneurship Administration and Business Laws while searching the internet. I was looking for some course for value addition to my profile and knowledge. I had already done my LLB and MBA but wanted some practical knowledge. This course appealed to me, as it was dealing with business laws and I was working with a corporate. So this course was very significant to me and covered things which were relevant to me.
The course syllabus covered subjects such as taxation, employee management laws, incorporation law, negotiation etc. Webinars by industry experts were the best part of the course structure; one can get in-depth knowledge of the subjects from these webinars. The NUJS diploma course has a very engaging and practical approach towards the subjects. I especially found the modules on one Person Company, FDI policies, and IPR to be very practical and beneficial. This was something which would come handy at my work.
I still refer the course materials as and when I come across different cases. I find it very handy as all this is online and can be accessed 24/7. Secondly, the course materials are updated from time to time, whenever a new act or an amendment is made it’s updated in the course, this way this course material is a handy reference source.
I also benefitted immensely from the iPleadersClub; a platform provided by iPleaders, over and above the NUJS course for overall grooming of its students. The various activities conducted as part of the club helped me improve my drafting and writing skills. I started writing blogs as part of the club activity which eventually got published in the iPleaders blog.
I even got to work as an editor for www.superlawyer.in, thanks to the grooming I received from iPleaders club.
I’ve mentioned this diploma in my CV and my Linked in profile. When I went for my interview I had questions around this diploma which led to a conversation. In future, I plan to set up my own legal firm and I strongly feel that the knowledge gained through this course would come handy then also.
I would be more than happy to recommend this course to anyone, I would personally recommend this course to anyone who is interested in law, not just a lawyer but any individual who wants to know various laws.
In this blog post, Rashi Chandoke, an Associate with ANA Law Group, Mumbai, and a student, pursuing a Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, analyzes the issuance of secured debuntures.
In this blog post, Meghana Balan, a Bangalore-based Lawyer with an Independent Practice and a student pursuing a Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, discusses the rules and regulations that are prescribed for raising capital.
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