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CS Professional · Corporate Restructuring, Valuation and Insolvency · Types of Corporate Restructuring

Rohan Industries Ltd transfers its automobile component unit to a newly incorporated company, Rohan Auto Ltd. Rohan Auto issues its shares directly to Rohan Industries' existing shareholders in proportion to their holdings. Rohan Industries continues its other businesses. What is the nature of this restructuring?

It is a demerger. A business undertaking is transferred to a resulting company, and the resulting company's shares are issued to the demerged company's shareholders in proportion to their holdings, while the demerged company continues with its remaining business.

  1. ADemerger, with the shareholders of the demerged company holding shares in the resulting companyCorrect
  2. BSlump sale for cash consideration
  3. CReverse merger
  4. DBuy-back of shares by Rohan Industries

Explanation

A division moves to a resulting company and the shareholders of the transferor receive the resulting company's shares proportionately, which is a demerger. In a slump sale the consideration goes to the seller company in cash. A reverse merger involves a parent or profitable entity merging into a subsidiary, which is not the case.

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