Acquisition of Business

. Acquisition of Business ACQUISITION OF BUSINESS BY A LIMITED COMPANY, GENERALLY, REFERS TO THE PURCHASE OF A NON-CORPORATE BUSINESS LIKE SOLE- PROPRIETORSHIP OR PARTNERSHIP FORM OF BUSINESS BY A COMPANY. THIS DOES NOT NECESSARILY MEAN THAT A LIMITED COMPANY CANNOT ACQUIRE THE BUSINESS OF A CORPORATE BODY, I.E., ANOTHER LIMITED COMPANY. BUT STRICTLY SPEAKING, THE ACQUISITION OF BUSINESS OF A LIMITED COMPANY BY ANOTHER LIMITED COMPANY COMES UNDER THE PURVIEW OF “AMALGAMATION, ABSORPTION AND RECONSTRUCTION OF COMPANIES”. Such an acquisition of business by a limited company may take any of the following two forms:

(i) An existing company may purchase an existing business of a sole-proprietor or a partnership firm, or

(ii) A new company may be formed to take over an existing business of a sole proprietor or a partnership firm, i.e., the existing business unit may be converted into a limited company. If the object is to retain the control of the sole-proprietor or the partners in the company, a private limited company may be formed. On the other hand, if the object of conversion is to supplement the resources for carrying out various expansion programmes, a public limited company may be formed for the purpose.

10. Important Points to be noted in Connection with Acquisition of a Business

1. CONSIDERATION: CONSIDERATION REFERS TO THE PRICE PAYABLE BY THE COMPANY FOR THE BUSINESS ACQUIRED. GENERALLY, AN AGREEMENT IS MADE BETWEEN THE COMPANY AND THE VENDOR CONTAINING THE TERMS AND CONDITIONS OF THE ACQUISITION OF BUSINESS, THE BASIS FOR DETERMINING THE CONSIDERATION AND THE MODE OF PAYMENT OF THE CONSIDERATION.

Consideration is usually, determined by taking into consideration the following facts: (i) the present value of the net tangible assets acquired, i.e., the present value of gross tangible assets acquired less liabilities, if any, acquired by the company; (ii) the amount payable, if any, for goodwill of the