Proposed amendments may require deal restructuring

The recently enacted Companies (Amendment) Act, 2017, brought a fresh set of revisions to the Companies Act, 2013, aimed at plugging loopholes and facilitating ease of doing business. However, certain proposed amendments (which have not yet been notified) may inadvertently affect the structuring of M&A and private equity transactions.

Subsidiary company: The 2013 act until now defined a subsidiary as a company where the holding company exercises or controls more than half of the “total share capital”. The amendment act has replaced “total share capital” with “total voting power”. Thus, an investee company could also qualify as a subsidiary of a shareholder who, through voting rights acquired under a shareholders’ agreement or pooling arrangement or differential voting rights, exercises more than half of the voting power in the company. Scenarios where preference shareholders acquire voting rights on all matters if dividends remain unpaid for two years or more could also lead to confusion as to a company’s ownership.

Aayush Kapoor is a partner and Karuna Thapa is a senior associate at Shardul Amarchand Mangaldas & Co. The views and opinions expressed are solely those of the author and do not necessarily reflect the official view or position of the firm.