Advantage and Disadvantage of Merger Process in Bangladesh: Advantages, Disadvantages, and Process
Mergers and amalgamations, often used interchangeably, are critical corporate strategies that involve the consolidation of two or more companies into a single entity. In Bangladesh, this process has distinct advantages and disadvantages for businesses. This article delves into the merits and drawbacks of mergers and amalgamations, while also providing insights into the legal process involved in such transactions.
Advantages of Mergers and Amalgamations
1. Tax Benefits
One of the significant advantages of mergers and amalgamations in Bangladesh is the potential for substantial tax benefits. When a profit-making company acquires a loss-making company, the merged entity can offset the profits against the losses, resulting in reduced tax liability. This financial advantage makes mergers an attractive option for companies seeking tax efficiencies.
2. Increased Production
Merging two or more companies can lead to increased production and economies of scale. The merged entity may have the capacity to capture a more extensive consumer base than individual companies would independently. This can lead to enhanced productivity and market competitiveness.
3. Asset Acquisition
In mergers, the acquiring company takes over all the assets of the merged company or companies. This straightforward process ensures the smooth transfer of assets and their integration into the operations of the surviving entity.
4. Streamlined Process
Amalgamation, as defined by the law in Bangladesh, is a clear and straightforward process. The legal framework provides specific guidelines and requirements for the merger, making it a structured and efficient procedure. This transparency can contribute to smoother execution.
Mergers prioritize the interests of shareholders. All shares from the merged companies are transferred to the surviving entity, protecting the investments and rights of shareholders. This ensures that shareholders continue to have a stake in the new, consolidated company.
6. Increased Capital
The merged entity benefits from an increase in net capital. This financial strength can be used to fund growth, innovation, and other strategic initiatives, strengthening the company’s market position.
7. Skill Set Enhancement
Mergers provide the opportunity to harness the expertise of both merging companies. This synergy allows the merged entity to address skill gaps and benefit from the diverse skill sets within the organization.
8. Transfer of Valuable Assets
In mergers, valuable intangible assets such as goodwill, intellectual properties, licenses, and bonds are transferred to the merged company. These assets can enhance the competitiveness and value of the new entity.
Disadvantages of Mergers and Amalgamations
1. Higher Costs
One of the primary disadvantages of mergers is the potential for higher costs and expenses compared to other alternatives like liquidation. The process involves legal, financial, and administrative expenses that can be substantial.
2. Legal Approval
To merge companies in Bangladesh, court approval is required. This legal requirement adds a layer of complexity and can lead to delays in the merger process.
3. Creditor Approval
Mergers necessitate the approval of creditors, which is mandatory. Creditors have the right to voice concerns and objections to the merger, potentially leading to disputes and complications.
4. Employee Issues
The merged company may face challenges related to employee issues. This includes concerns about job security, changes in roles and responsibilities, and potential redundancies. Managing these human resources aspects can be complex.
The Legal Process
The legal process for mergers and amalgamations in Bangladesh follows a structured path, ensuring compliance with regulatory requirements. Here’s an overview of the key legal steps:
1. Alteration of Memorandum
Companies seeking to merge must begin by altering the provisions of their Memorandum of Association. This alteration is necessary to enable the amalgamation. A special resolution is passed by the company’s board for this purpose.
2. Filing a Joint Petition
After altering the Memorandum, the next step involves filing a joint petition before the court under Section 228 of the Companies Act 1994. The petition outlines the proposed compromise or arrangement for the amalgamation of companies.
3. Court’s Amalgamation Order
Upon review of the joint petition, the court issues an amalgamation order under Section 229 of the Companies Act 1994. This order provides for the transfer of property and liabilities. Assets of the diminishing company are transferred to and vested in the surviving entity, while liabilities become the responsibilities of the transferee company.
4. Confirmation by Registrar
The confirmation of the alteration to the Memorandum is certified by the Registrar of the Joint Stock Companies and Firms of Bangladesh, completing the legal process.
Certainly, here’s a table summarizing the key points regarding the advantages, disadvantages, and the legal process of mergers and amalgamations in Bangladesh:
|Advantages of Mergers and Amalgamations|
|Tax Benefits||Profit-making company offsets losses||Reduces tax liability|
|Increased Production||Economies of scale and market competitiveness||Enhances productivity and market reach|
|Asset Acquisition||Acquiring company absorbs merged assets||Smooth transfer and integration of assets|
|Streamlined Process||Well-defined legal process in Bangladesh||Facilitates efficient execution|
|Shareholder Protection||All shares transferred to surviving entity||Safeguards shareholders’ interests|
|Increased Capital||Boosts net capital for growth and innovation||Strengthens financial position|
|Skill Set Enhancement||Synergy of expertise from both companies||Addresses skill gaps and diversifies strengths|
|Transfer of Valuable Assets||Intellectual properties, goodwill, and more||Enhances competitiveness and value|
|Disadvantages of Mergers and Amalgamations|
|Higher Costs||Legal, financial, and administrative expenses||Can be substantial and impact budgets|
|Legal Approval||Court approval required||Adds complexity and potential delays|
|Creditor Approval||Mandatory creditor approval||May lead to disputes and complications|
|Employee Issues||HR challenges related to workforce||Concerns about job security and role changes|
|The Legal Process|
|Alteration of Memorandum||Special resolution for Memorandum alteration||Enables amalgamation|
|Filing a Joint Petition||Joint petition under Section 228 of Companies Act||Outlines proposed amalgamation arrangement|
|Court’s Amalgamation Order||Court-issued order under Section 229 of Companies Act||Facilitates property and liability transfer|
|Confirmation by Registrar||Registrar’s certification of alteration||Completes the legal process|
This table offers a concise overview of the key points related to mergers and amalgamations in Bangladesh, covering their advantages, disadvantages, and the legal process.
Mergers and amalgamations in Bangladesh offer distinct advantages, such as tax benefits, increased production, asset acquisition, and enhanced shareholder protection. However, they come with disadvantages, including higher costs, legal complexities, creditor approval requirements, and employee-related challenges.
The structured legal process ensures transparency and compliance throughout the merger journey. By understanding both the benefits and challenges of mergers and amalgamations, businesses can make informed decisions and navigate the process effectively. Legal guidance and expertise are crucial for a successful merger, ensuring all legal requirements are met and potential issues are addressed.