## Demerger [Section 2(19AA)]
### Meaning
Demerger is the transfer of one or more undertakings by a demerged company to a resulting company under a scheme of arrangement.
| Term | Meaning |
|---|---|
| Demerged company | The company transferring the undertaking(s) |
| Resulting company | The company receiving the undertaking(s) and issuing shares to the demerged company's shareholders in exchange |
### Conditions (ALL must be satisfied)
1. All property of the transferred undertaking becomes the property of the resulting company.
2. All liabilities relating to the transferred undertaking become the liabilities of the resulting company.
3. Book value transfer: Property and liabilities are transferred at book values as they appear in the demerged company's books.
- Exception: If Indian Accounting Standards (Ind AS) require different values, this condition does not apply.
- Revaluation changes are ignored when determining values.
4. The resulting company issues shares to the shareholders of the demerged company on a proportionate basis (except where it already holds shares in the demerged company).
5. Shareholders holding at least 75% in value of shares in the demerged company — excluding shares already held by the resulting company or its subsidiaries — must become shareholders of the resulting company.
6. The transfer must be carried out as a going concern.
7. The demerger must comply with any conditions notified by the Central Government.
### Public sector companies
Where a public sector company is split into separate companies to transfer assets to a resulting company, it is treated as a demerger if:
- The resulting company is a public sector company on the appointed day, and
- Other conditions notified by the Central Government are fulfilled.
Contrast with amalgamation: In a demerger only part (an undertaking) of the company moves, transferred at book value, and the demerged company continues to exist; in an amalgamation the whole company merges.