Internal accruals are an important source of funding mergers and takeovers. Comment on the statement with reference to issue of equity instruments with differential voting rights.

Mergers and takeovers involve payment of consideration for acquiring the properties/shares of the target company. The consideration depends on the target company valuation. Funding mergers and takeovers imply the modes of raising finance to service the corporate restructuring strategy Funds may be raised through internal sources such as Equity capital Preference Capital, accumulated reserves and profits. As per the Companies Act, 2013, an Indian company is permitted issue equity instruments with differential rights as to dividend and or voting Companies may issue non-voting shares Such issue gives companies an additional source of fund without dividend cost and without the obligation to repay, as these are other forms of the equity capital. Generally, promoters prefer such securities since there is no loss of control. A company limited by shares may issue equity shares with differential rights subject to the following conditions: There must be an authority in the Articles of Association of the company, Obtain shareholders' approval through ordinary resolution in general meeting. Provided that where the equity shares of a company are listed on a recognized stock exchange, the issue of such shares shall be approved by the shareholders through postal ballot. The equity capital with differential rights shall not exceed 74% of the total voting power, No default in filing annual accounts and annual returns for three years; immediately preceding the financial year in which it is decided to issue such shares; No subsisting default in the payment of a declared dividend to its shareholders or repayment of its matured deposits or redemption of its preference shares or debentures that have become due for redemption or payment of interest on such deposits or debentures or payment of dividend The company has not defaulted in payment of the dividend on preference shares or repayment of any term loan from a public financial institution or State level financial institution or scheduled Bank that has become repayable or interest payable thereon or dues with respect to statutory payments relating to its employees to any authority or default in crediting the amount in Investor Education and Protection Fund of the Central Government. Provided that a company may issue equity shares with differential rights upon expiry of five years from the end of the financial Year in which such default was made good. The company has not been penalized by Court or Tribunal during the last three years of any offence under the Reserve Bank of India Act, 1934, the Securities and Exchange Board of India Act, 1992, the Securities Contracts Regulation Act, 1956, the Foreign Exchange Management Act, 1999 or any other special Act, under which such companies being regulated by sectoral regulators. A company shall not convert its existing equity share capital with normal voting rights into equity shares with differential voting rights and vice versa.