Page 329 - DCOM508_CORPORATE_TAX_PLANNING

Corporate Tax Planning

Notes 2. Primary Valuation: This valuation done by seller to get better idea about value of the
business to be sold.
3. Analyse and Finalise buyer: Analysis of short listed buyer; should consider objective of
the deal, cost and time required for execution and structure of the deal. This helps to get a
better idea about the deal before fi nalisation.

Step 2: Sign MoU/Term Sheet

Once the buyer company is selected there is the need to sign MoU (Memorandum of
understanding) which helps the buyer company to get access of seller entities information for
making due diligence, valuation etc.

Step 3: Make Valuation

Valuation is a process of determining the value of assets and liabilities of business. It is one of the
most important aspects of slump sell process, as seller wants maximum valuation for its business
whereas buyer wants it at lowest end. Valuation of business is mandatory for listed company.
Following are various methods to value business:

1. Discounted cash fl ow method
2. Profit based methods

3. Net Asset Value Method
4. Comparable company Analysis
5. Maintainable Profi t Method

Step 4: Deal Structuring

A deal should be structured considering agreement between buyer and seller. It should be time,
cost and compliance effective. While structuring a deal following factors must be taken into
consideration:

1. Objective of the deal: This includes the core objective set for deal of slump sale while
structuring the deal it must be taken into consideration that objective is getting achieved

fully. As post deal factors such as ownership and control, financial impact depends on
structuring of the deal.
2. Transaction cost: Transaction cost under slump sale mainly involve capital gain tax to the
seller, stamp duty tax to the buyer and withdrawal of exemption deduction and allowances
and apart form these professional fees to the consultants. Transaction costs involved in
slump sale can go up to 5-10% of deal size.
3. Discharge of consideration: Lump sum Consideration may be discharged by payment in
cash or by way of issue of debentures and or both. Consideration being imperative aspect
of slump sale should be discharged by taking in to consideration future fi nancial, legal and
strategic impact on transacting companies.

Step 5: Slump Sale Agreement

Deal needs to be executed through agreement, capturing all slump sale clauses, effecting
objectives predetermined and executed by both parties. And executed agreement needs to be
registered as per applicable Stamp Act.

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