India: Takeovers and Acquisitions — Key Structures and Considerations for Company Directors and General Counsel

Acquiring an existing business is a well-established route for entering or expanding within the Indian market. Mergers and acquisitions (“M&A”) in India can be structured in several ways, depending on commercial objectives, regulatory considerations, and tax efficiency. This article provides an overview of the principal acquisition structures commonly used in India and highlights key legal and regulatory considerations relevant to boards and in-house legal teams.

Common Modes of Acquiring Existing Businesses

1. Share Acquisitions

In a share acquisition, the acquirer purchases equity interests in the target company from the existing shareholders and thereby becomes the owner of the target entity. Increasingly, transactions are also structured as stock-swap deals, particularly where the selling promoters intend to continue their involvement in the business or where the acquirer prefers not to deploy significant cash consideration.

Typically, the parties enter into a share purchase or share transfer agreement, which sets out:

• the shares to be transferred;

• the consideration payable;

• conditions precedent;

• representations, warranties, and indemnities; and

• closing mechanics.

Stamp duty on the transfer of shares in India is currently levied at 0.015% of the consideration value, irrespective of whether the shares are held in physical or dematerialised form, in addition to stamp duty payable on the share purchase agreement at the applicable State rate.

Acquisitions of unlisted companies are also subject to:

• restrictions contained in the company’s articles of association; and

• any shareholders’ or pooling agreements in place among existing shareholders.

2. Asset Purchases

What is commonly referred to globally as an asset purchase is recognised in India in two distinct forms:

(i) Slump Sale

A slump sale involves the acquisition of an entire business undertaking as a going concern for a lump-sum consideration, without assigning individual values to specific assets and liabilities. All assets and liabilities forming part of the business are transferred together.

(ii) Itemised (Asset-by-Asset) Sale

An itemised sale allows the acquirer to selectively purchase specific assets and assume identified liabilities, without acquiring the entire business undertaking.

In both cases, the transaction is typically documented through a business transfer agreement or an asset purchase agreement, detailing:

• assets and liabilities to be transferred;

• consideration and payment terms;

• transfer mechanics for each asset class;

• conditions precedent; and

• representations, warranties, and indemnities.

Foreign investors are required to establish an Indian entity to acquire businesses or assets located in India.

From a tax perspective, slump sales are often more tax-efficient than itemised sales (subject to valuation rules). Importantly:

• Goods and Services Tax (GST) is not levied on a slump sale; however

• GST applies to individual asset transfers in an itemised sale.

Stamp duty varies by State and is determined based on the location of the assets or undertaking and the value attributed to them.

3. Mergers and Amalgamations

A merger involves the consolidation of two or more companies into a single entity. Upon completion:

• all assets and liabilities of the transferor company vest in the transferee company;

• employees are transferred automatically; and

• the transferor company is dissolved without winding up.

Consideration is typically discharged through the issuance of shares by the transferee company to the shareholders of the transferor company.

Under Indian company law, mergers are tribunal-driven processes requiring:

• approval of the National Company Law Tribunal (NCLT); and

• approval of shareholders and creditors of the merging entities.

Mergers may offer tax benefits, provided statutory conditions are satisfied.

Fast-Track Mergers

Indian law also provides a fast-track merger mechanism for eligible companies. Following amendments introduced in 2025, eligibility has been significantly expanded. Unlisted companies with aggregate outstanding borrowings (including loans, debentures, and deposits) not exceeding INR 2,000,000,000 (approximately USD 22.26 million), and with no defaults, may utilise this route.

The fast-track mechanism also applies to:

• mergers between holding companies (listed or unlisted) and one or more unlisted subsidiaries (even if not wholly owned); and

• mergers between unlisted fellow subsidiaries under the same parent, subject to compliance thresholds.

4. Cross-Border Mergers

Cross-border mergers are permitted under Indian law and are regulated under the Companies Act and applicable foreign exchange regulations. Prior approval of the Reserve Bank of India is required.

• An inbound merger results in an Indian company as the surviving entity.

• An outbound merger results in a foreign company as the surviving entity.

In inbound mergers, the Indian resultant company may issue or transfer securities to non-resident shareholders, subject to foreign investment rules, sectoral caps, pricing guidelines, and reporting requirements.

In outbound mergers, any Indian office of the merging Indian company may be deemed a branch office of the foreign resultant company and operate under the applicable branch office regulations.

5. Demergers

A demerger involves the transfer of a specific business undertaking to another company, while the demerged company continues to exist. Demergers are commonly used to:

• segregate core and non-core businesses;

• improve managerial focus;

• attract strategic or financial investors; or

• facilitate exits.

Demergers require NCLT approval and result in the transfer of assets, liabilities, and employees of the identified business undertaking on a going-concern basis. Consideration is typically discharged through the issuance of shares by the transferee company to the shareholders of the demerged company. Tax benefits may be available if statutory requirements are met.

6. Acquihire Transactions

Acquihire transactions have gained prominence in India, particularly in the technology sector. In such transactions, the primary objective is the acquisition of skilled employees rather than the transfer of a business undertaking or assets. These structures require careful handling of employment, non-compete, and intellectual property considerations.

7. Private Equity and Venture Capital Investments

India has experienced sustained growth in private equity and venture capital investments over the past two decades, especially in technology-driven sectors. Foreign private equity and venture capital investments are regulated under India’s foreign exchange framework, while domestic pooled investment vehicles are governed by the Alternative Investment Fund regulations issued by the securities regulator.

8. Takeover of a Listed Company

Acquisitions of listed companies are subject to India’s takeover regulations. An investor acquiring 25% or more of the shares or voting rights of a listed company is required to make a mandatory public offer to acquire an additional 26% of the shares from public shareholders.

Further, where an acquirer already holds more than 25%, any additional acquisition exceeding 5% in a financial year also triggers an open offer obligation.

The takeover regulations prescribe:

• offer pricing methodology;

• procedural timelines; and

• disclosure requirements.

The open offer process involves, among other steps, appointment of a merchant banker, creation of an escrow account, regulatory filings, and public disclosures. Certain acquisitions are exempt, including specific inter-se transfers, court-approved schemes of arrangement, and qualifying restructurings. Regulatory exemptions may also be granted on application, subject to investor-protection safeguards.

Conclusion

India offers a mature and flexible legal framework for M&A transactions, with multiple structuring options available to domestic and foreign acquirers. For directors and general counsel, early assessment of regulatory, tax, and operational implications is essential to selecting the optimal acquisition structure and ensuring transaction certainty.

By Majmudar & Partners, India, a Transatlantic Law International Affiliated Firm.

For further information or for any assistance please contact india@transatlanticlaw.com

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