Monday 5 August 2024

Slump sale more attractive post budget.

"The reduction in tax rates to 12.5 percent is significant. Companies may increasingly opt for slump sales, especially when there is a need to redeploy cash within the transferor company. Slump sales might also become more common for entering into strategic joint ventures or facilitating staggered private equity buyouts, where the transferor continues for a few years before eventually exiting through the sale of shares. The lower rate of 12.5 percent on the sale of shares would facilitate joint venture structures, particularly when cash needs to be redeployed within the transferor company.

From a commercial perspective, the cash consideration from a slump sale is received by the transferor company, not its shareholders. This cash can be redeployed in other businesses of the transferor, used for debt repayment, or for mergers and acquisitions (M&A) activities. Distributing this cash to the shareholders would require the company to issue dividends, which would result in additional dividend tax. Therefore, a slump sale is advantageous if the cash needs to be redeployed within the transferor company." 

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