Merger vs Demerger explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
A merger combines companies; a demerger moves an undertaking out of one company into another. The Companies Act, 2013 handles both through the same scheme-of-arrangement sections, 230 to 232, with a fast track in section 233, while the Income-tax Act, 2025 defines "amalgamation" and "demerger" separately and gives each its own conditions. This guide compares them. It reads the Companies Act in the Ministry's consolidated text (last updated 29 July 2022) and the Income-tax Act, 2025 as amended by the Finance Act, 2026, consulted on 3 October 2026. The Compromises, Arrangements and Amalgamations Rules are not among the texts read here and are only named. Later amendments should be checked.
Under the Companies Act, a merger is a scheme where the undertaking, property and liabilities of a transferor company are transferred to another company (by absorption into an existing company, or by formation of a new company), and a division is a scheme where they are divided among and transferred to two or more companies (section 232). Both need a Tribunal-sanctioned scheme under sections 230 to 232, except the fast track in section 233 for small companies and a holding company with its wholly owned subsidiary. The Income-tax Act, 2025 defines "amalgamation" (section 2(6)) and "demerger" (section 2(35)) with conditions such as three-fourths in value of shareholders becoming shareholders of the transferee or resulting company. For tax consequences, see our income-tax guides.
The Companies Act route
Section 230. Where a compromise or arrangement is proposed between a company and its creditors or members (or any class of them), the Tribunal may, on the application of the company, a creditor or member, order a meeting to be called, held and conducted as it directs. Section 230(2) requires an affidavit disclosing material facts, including the latest financial position, the latest auditor's report, pending investigations, any reduction of capital and, for a corporate debt restructuring, a valuation report by a registered valuer. Notice goes to creditors, members and debenture-holders with a statement of effect and a copy of the valuation report, and, under section 230(5), to the Central Government, the income-tax authorities, the Reserve Bank, SEBI, the Registrar, stock exchanges, the Official Liquidator and the Competition Commission, among others, who have thirty days to make representations. Under section 230(6), the scheme binds all when a majority representing three-fourths in value of the creditors or members, voting in person, by proxy or by postal ballot, agree and the Tribunal sanctions it. The Tribunal's order is filed with the Registrar within thirty days (section 230(8)). Objection is limited to holders of not less than ten per cent of shareholding or five per cent of outstanding debt (section 230(4) proviso).
Section 232. For a scheme of reconstruction involving merger or amalgamation of two or more companies, where the whole or part of the undertaking, property or liabilities of the transferor company is to be transferred to another (the transferee company) "or is proposed to be divided among and transferred to two or more companies", the Tribunal orders a meeting and sections 230(3) to (6) apply. The companies circulate the draft scheme, confirmation of filing with the Registrar, the directors' report on effect on each class (including the share exchange ratio), the valuation expert's report, and a supplementary accounting statement if the last accounts end more than six months before the first meeting. The Tribunal may provide for the transfer, allotment of shares, continuation of legal proceedings, dissolution of the transferor without winding up, dissenters, employees and other matters (section 232(3)); a transferee company shall not hold shares in itself, which are cancelled; and the scheme must indicate an appointed date (section 232(6)). The auditor's certificate on accounting treatment must be filed (proviso to section 232(3)). The explanation to section 232 defines merger by absorption, merger by formation of a new company and division (a scheme under which the undertaking, property and liabilities of the company are divided among and transferred to two or more companies, each existing or new).
Section 233. Notwithstanding sections 230 and 232, a scheme of merger or amalgamation may be entered into between two or more small companies, or between a holding company and its wholly owned subsidiary, or other prescribed classes, subject to: notice inviting objections within thirty days to the Registrar and Official Liquidators; approval at general meetings by members holding at least ninety per cent of the total number of shares; a declaration of solvency filed with the Registrar; and approval by a majority representing nine-tenths in value of creditors at a meeting called on twenty-one days' notice, or in writing. The Central Government then confirms, or may apply to the Tribunal within sixty days if it considers the scheme not in the public interest. The Rules under these sections are not read here. For a plain-language comparison, see our guide on amalgamation vs demerger and our overview of schemes of arrangement. If you want advice on structuring, see our legal consultation service.
The Income-tax Act, 2025 definitions
This is the only part of this article that quotes the tax statute, and only its definitions; consequences, rates and exemptions are for our income-tax guides.
Amalgamation, section 2(6). The merger of one or more companies with another company, or of two or more companies to form one company, in such a manner that (a) all the property of the amalgamating company or companies immediately before the amalgamation becomes the property of the amalgamated company; (b) all the liabilities become the liabilities of the amalgamated company; and (c) shareholders holding not less than three-fourths in value of the shares in the amalgamating company or companies (other than shares already held by, or by a nominee for, the amalgamated company or its subsidiary) become shareholders of the amalgamated company, otherwise than as a result of the acquisition of the property of one company by another pursuant to purchase, or distribution of property after winding up.
Demerger, section 2(35). The transfer, pursuant to a scheme of arrangement under sections 230 to 232 of the Companies Act, 2013, by a demerged company of one or more undertakings to any resulting company so that: (a) all property of the undertaking becomes the property of the resulting company; (b) all the liabilities relatable to the undertaking become the resulting company's liabilities; (c) property and liabilities are transferred at values appearing in the demerged company's books immediately before the demerger, except in compliance with the Ind AS Rules; (d) the resulting company issues its shares to the shareholders of the demerged company on a proportionate basis (except where the resulting company is itself a shareholder); (e) shareholders holding not less than three-fourths in value of the shares in the demerged company become shareholders of the resulting company by virtue of the demerger; (f) the transfer is on a going concern basis; and (g) the demerger is as per the conditions, if any, notified under section 116(7) by the Central Government. Demerged company, section 2(34): the company whose undertaking is transferred. Resulting company, section 2(97): one or more companies (including a wholly owned subsidiary) to which the undertaking is transferred and which issues shares to the demerged company's shareholders in consideration, and includes the bodies the definition lists.
Side-by-side table
| Point | Merger | Demerger or division |
|---|---|---|
| Companies Act meaning | Transfer of undertaking, property and liabilities of the transferor company to another company, by absorption or by formation of a new company (section 232) | Division of the undertaking, property and liabilities among two or more companies, each existing or new; or transfer of an undertaking (section 232(1)(b) and Explanation) |
| Approval route | Tribunal under sections 230 and 232; fast track under section 233 for small companies and holding and wholly owned subsidiary | Tribunal under sections 230 and 232; section 233 names merger or amalgamation only |
| Member and creditor vote | Three-fourths in value, in person, by proxy or postal ballot (section 230(6)); ninety per cent route under section 233 | Same under sections 230 and 232 |
| Who files | The company files the Tribunal's order with the Registrar within thirty days (sections 230(8), 232(5)); transferee files the approved scheme under section 233(2) | Same for a Tribunal order |
| Effect on shareholders | Allotment or appropriation of shares under the scheme (section 232(3)(b)) | Shares of the resulting company issued to the demerged company's shareholders on a proportionate basis in the tax definition |
| Tax definition | Section 2(6), Income-tax Act, 2025: conditions (a) to (c) | Section 2(35): conditions (a) to (g) |
Worked example (invented names and numbers)
Mango Foods Limited has two undertakings, snacks and beverages. Under a scheme sanctioned by the Tribunal, the beverages undertaking moves to Mango Drinks Limited, which issues its shares to Mango Foods' shareholders in the proportion of their holdings. If shareholders holding 75 of every 100 shares, by value, become shareholders of Mango Drinks, the three-fourths limb of section 2(35)(e) is met: 75 / 100 = three-fourths, which is not less than three-fourths. Whether the other conditions are met depends on values in the books, going concern status and any notified conditions. The Companies Act view is separate: it needs the Tribunal's sanction, the appointed date and the Registrar filing.
Common mistakes
- Treating a tax definition as satisfied because the Companies Act scheme is sanctioned, or the reverse.
- Using the section 233 fast track for a demerger; the section speaks of merger or amalgamation.
- Omitting the notice to the income-tax authorities and other authorities in section 230(5).
- Not stating an appointed date.
- Missing the thirty-day filing of the Tribunal's order.
Need help with a merger or demerger?
We can advise on structure, prepare the scheme documents and coordinate the Tribunal and Registrar filings. See our legal consultation service.
Key takeaways
- Sections 230 to 232 cover both mergers and divisions; section 233 is a fast track for specified mergers.
- Three-fourths in value is the vote under section 230(6).
- The Income-tax Act, 2025 defines amalgamation in section 2(6) and demerger in section 2(35).
- A scheme needs an appointed date and the Tribunal's order filed within thirty days.
- For tax consequences, see our income-tax guides.
Read next
- Holding Company AGM and Subsidiary Accounts
- Is a Subsidiary's Associate Also an Associate of the Holding Company
- Amalgamation vs Demerger: Key Differences
- Section 2 of the Income-tax Act, 2025: Definitions
Disclaimer: Based on the Companies Act, 2013 in the Ministry of Corporate Affairs consolidated text (last updated 29 July 2022), the Rules as consolidated in the Ministry's e-book and the other official texts named in this article, as consulted on 3 October 2026. Later amendments, notifications, circulars, forms and fees should be checked. Formats are general drafts to be adapted to the company's articles and facts. This article is general information, not legal advice; check the official text before acting.