Acquisition of a business by a limited company generally refers to the purchase of sole-proprietorship or partnership form (Non Corporate business) of business by a company. It does not mean that a limited company does not acquire the business of another limited company i.e. a corporate body. But the acquisition of the business of a limited company by another limited company is called as amalgamation, Absorption and reconstruction of companies.
Acquisition of a business by a limited company may take any of the following two forms:
- A limited company purchases the business of a sole-proprietorship or partnership firm
- A new company may be formed to takeover the existing business of a sole-proprietorship or partnership firm
Points to be noted in regarding to the acquisition of a business
- Consideration: Consideration refers to the price payable by company for the business acquired
Consideration could be defined on the basic of following facts:
1.The present value of the net tangible assets acquired,
2.For goodwill of the business acquired
3.The liability to be taken over the purchasing company
- Mode of payment of the consideration by the company :The entire consideration may be paid in cash.The entire consideration may be paid by the issue of shares of the company or by the issue of debenture of the companyThe consideration may be paid partly in cash and partly by the issue of share and/ or partly by the issue of debenture of the company
- Interest payable to vendors on the purchase of consideration
- Whether to open a new set of books by the company after the acquisition of the business or to continue on the books of vendor.
- Collection of debtors or the payment to creditors of the vendor on behalf of the vendor by the company
You could also read the following blogs: