Corporate Restructuring, Valuation and Insolvency · Acquisition of Company or Business

Acquisition of Company or Business: Concept and Modes

Updated 11 October 2026 · Fact-checked

An acquisition is a transaction in which one party (the acquirer) obtains control of another company or of its business. The two main modes are buying the target's shares, and buying its assets or business. In shares, the company survives. In assets, only the business moves, and the seller company stays.

Understand Acquisition of Company or Business: Concept and Modes

An acquisition happens when an acquirer gets control over a target. Control can come through the target's shares or through its assets or business. The target may keep its identity or may not. This depends on the mode.

In a share purchase, the acquirer buys shares from existing shareholders, or subscribes to new shares. The target company continues as a legal entity. Its contracts, licences, assets, and liabilities stay inside it. The acquirer's money goes to the selling shareholders, not to the company, unless fresh shares are issued. If the acquirer ends up with a majority, the target becomes a subsidiary.

In an asset or business purchase, the acquirer buys the assets, the whole undertaking, or a part of it. The money goes to the selling company. The seller company continues to exist. Liabilities move only if the agreement says so. Each asset or contract may need separate transfer or consent. A purchase of a whole undertaking for a lump sum is commonly called a slump sale.

Acquirers have different motives: growth into new markets or products, access to technology or talent, cost savings through scale, removing a competitor, vertical integration of supply or distribution, and diversification of risk. Sellers sell to exit, raise cash, or focus on the core business.

Acquisition is different from merger. In a merger or amalgamation, two or more companies combine under a scheme. The transferor company is usually dissolved without winding up, and its assets and liabilities pass to the transferee. In an acquisition, the target typically stays alive as a separate company, and no scheme is needed for a simple share or asset purchase. Takeover is often used for an acquisition of control, and it can be friendly (with the target's board agreeing) or hostile (against the board's wishes). In practice, people use the words loosely, so state the legal meaning in your answer.

One point from the Companies Act, 2013 is worth remembering. Under Section 240, liability of officers in default of the transferor company for offences under the Act, committed before its merger, amalgamation or acquisition, continues after the transaction. Also, an acquirer that invests in the target's securities must watch the limits in Section 186.

Key rules to remember

Share purchase: core rule: Buyer gets shares; target company continues; liabilities stay in target; The buyer takes the company as it is, including hidden liabilities. This is why due diligence matters.
Asset or business purchase: core rule: Buyer gets chosen assets or undertaking; seller company continues; liabilities move only as agreed; Money goes to the seller company. Transfer of each asset or contract may need separate steps.
Section 186(2) investment limit: Loans + guarantees/security + acquisition of securities ≤ higher of (60% of paid-up share capital, free reserves and securities premium) or (100% of free reserves and securities premium); Beyond this limit, Section 186(3) needs prior authorisation by a special resolution in a general meeting. The proviso exempts loans, guarantees or security to a wholly owned subsidiary or joint venture company, and acquisition by a holding company of securities of its wholly owned subsidiary.
Section 186(1) layers rule: Investment through not more than two layers of investment companies; Unless otherwise prescribed. Provisos protect acquisition of a foreign company with deeper layers under its local law, and subsidiaries required to have investment subsidiaries by law.
Section 186(5) approval: Board resolution at a meeting with consent of all directors present; Prior approval of the public financial institution is also needed where a term loan is subsisting, subject to the proviso.
Section 240: Liability of officers in default of the transferor company for pre-merger, pre-amalgamation or pre-acquisition offences under the Act continues; Applies notwithstanding any other law.

How to solve Acquisition of Company or Business: Concept and Modes questions

Use this order for any question on acquisition of a company or business. It keeps the answer in the provision, analysis, conclusion format.

1Identify what is being bought: shares of the company, or assets or an undertaking. Note the percentage of shares if given.
2Name the mode and define it in one or two lines, such as share purchase, asset purchase, or slump sale.
3State who receives the consideration and what happens to the target and seller company after the deal.
4Trace liabilities, contracts, licences and employees: do they stay with the target or move to the buyer?
5Apply the legal checks from the facts: Section 186 limits and approvals for the acquiring company, and any other law the facts point to.
6Link the mode to the acquirer's motive and to the risk, such as hidden liabilities or transfer formalities.
7Compare with merger or takeover if the question asks for it, using dissolution, scheme and control as the points.
8Conclude with a clear recommendation or answer that ties back to the facts.

Quickest way: Shares or assets in four checks

When to use it: Use when the question gives a short fact pattern and asks you to identify the mode or advise on it.

Ask: what is being bought, shares or assets?
Ask: who gets the money, shareholders or the company?
Ask: does the target company survive with its liabilities?
Ask: which Section 186 limit or approval applies to the acquirer? Then write the conclusion.

Common mistakes in Acquisition of Company or Business: Concept and Modes

Treating acquisition and merger as the same thing.
Textbooks and news use 'M&A' and 'takeover' loosely.
Fix: Say that in a merger the transferor usually dissolves under a scheme, while in an acquisition the target usually survives as a separate company.
Saying that in a share purchase the target's assets are transferred.
Students think control means ownership of assets.
Fix: Write that only shares change hands. The company still owns its assets and owes its liabilities.
Saying that liabilities automatically pass in an asset purchase.
Confusion with amalgamation, where liabilities pass to the transferee.
Fix: State that liabilities pass only as the agreement provides, and that creditors' consent may be needed for transfer of debts.
Forgetting that in an asset purchase the money goes to the seller company, not to its shareholders.
Mixing up the two modes.
Fix: Mark the payee in every answer. Shares: shareholders. Assets: company.
Stating the Section 186 limit as a flat 60% of net worth.
Students memorise only the first number.
Fix: Write the full test: 60% of paid-up capital, free reserves and securities premium, or 100% of free reserves and securities premium, whichever is more.
Applying Section 186(3) special resolution to acquisition of a wholly owned subsidiary's shares by its holding company.
The proviso is skipped.
Fix: Remember the proviso: the sub-section does not apply to such acquisition, but disclosure in financial statements is still required.

Worked examples

Example 1

Aarav Textiles Ltd wants to enter the home furnishings business. It can buy 100% of the shares of Kaveri Furnishings Pvt Ltd from its shareholders, or buy only Kaveri's manufacturing unit for a lump sum. Explain the two modes and the main difference in outcome.

Show the solution

Mode 1 is a share purchase. Aarav buys shares from Kaveri's shareholders. The money goes to them.
After the deal Kaveri continues as a separate company, now a wholly owned subsidiary. Its assets, contracts, licences and liabilities stay inside it, including any hidden liabilities.
Mode 2 is an asset or business purchase, here a purchase of an undertaking for a lump sum, called a slump sale. The money goes to Kaveri Furnishings Pvt Ltd.
Kaveri continues to exist with its remaining business. The unit moves to Aarav. Liabilities move only if the agreement says so, and assets and contracts may need separate transfer or consent.
Neither mode is a merger, as no scheme combines the companies and Kaveri is not dissolved.

Answer: A share purchase gives Aarav control of the whole company with all its liabilities, and the price goes to the shareholders. An asset or business purchase gives only the unit, with liabilities as agreed, and the price goes to the company. Aarav should choose based on liability risk, transfer formalities and need for the entire business.

Example 2

Sundaram Industries Ltd has paid-up share capital of ₹50 crore, free reserves of ₹30 crore and securities premium of ₹20 crore. It has no earlier loans, guarantees or investments. It plans to buy shares of an unrelated company, Meridian Ltd, for ₹70 crore. Is a special resolution required under Section 186?

Show the solution

Add paid-up capital, free reserves and securities premium: ₹50 crore + ₹30 crore + ₹20 crore = ₹100 crore.
60% of ₹100 crore = ₹60 crore.
Free reserves plus securities premium = ₹30 crore + ₹20 crore = ₹50 crore. 100% of this is ₹50 crore.
The limit is whichever is more: ₹60 crore.
Proposed acquisition is ₹70 crore, plus nothing earlier. ₹70 crore exceeds ₹60 crore.
Meridian is unrelated, so the proviso for a wholly owned subsidiary or joint venture does not apply.
Hence Section 186(3) applies and prior authorisation by a special resolution in a general meeting is needed. The Board resolution under Section 186(5) with consent of all directors present is also needed, and disclosure in the financial statement is required.

Answer: Yes. The limit is ₹60 crore, the proposed investment is ₹70 crore, so a special resolution in a general meeting is required before the acquisition, along with the Board approval and disclosure.

Exam tips

Start with a one-line definition and the two modes. Examiners reward a clear base before the analysis.
Use a short comparison for acquisition versus merger: survival of the target, scheme, dissolution, consideration payee.
In case facts, always name the mode first, then apply Section 186 to the acquirer. Show the limit calculation if numbers are given.
Quote Section 186 numbers carefully: limit in (2), special resolution in (3), Board consent in (5), register in (9).
End with practical advice, such as due diligence, indemnities and the transfer steps, since the paper values drafting and compliance points.

Practice questions from Acquisition of Company or Business

Acquisition of Company or Business: Concept and Modes in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Acquisition of Company or Business: Concept and Modes: frequently asked questions

What is the difference between acquisition and merger?

In an acquisition, the acquirer buys shares or assets, and the target usually continues as a separate company. In a merger, companies combine under a scheme and the transferor company is usually dissolved. Consideration in a merger goes to the transferor's shareholders.

Which is safer for the buyer, share purchase or asset purchase?

An asset purchase is usually safer on liabilities, as the buyer takes only what the agreement lists. A share purchase is simpler on transfer, since contracts and licences stay in the company, but it carries all existing liabilities.

Is takeover the same as acquisition?

The terms overlap. Takeover usually stresses gaining control, and it may be friendly or hostile. Acquisition is the wider term and covers purchase of shares or of a business.

Does Section 186 apply when a company acquires shares of another company?

Yes. Acquiring securities of another body corporate counts towards the limits in Section 186(2). A special resolution is needed above the limit, except for acquisition by a holding company of securities of its wholly owned subsidiary.

Do offences of the acquired company disappear after the deal?

No. Under Section 240, liability of officers in default of the transferor company for offences under the Act committed before merger, amalgamation or acquisition continues after it.