In a demerger, you generally keep your existing shares and are credited with new shares of the separate company, if you are on the company’s records as a holder on a fixed date. You pay no cash and give up none of your old shares. In a merger, what you receive depends on the terms of the scheme, the formal plan the company files for the deal.
What is the difference between a merger and a demerger?
A merger combines two companies into one. A demerger splits one company so that a division becomes a separate company with its own shares. Both usually go through a scheme of arrangement, which is the formal plan setting out who gets what.
Who gets the new shares in a demerger?
Only investors recorded as holders on a fixed record date qualify. The record date is the cut-off on which your name must appear in the company’s register of shareholders. If you are not recorded as a holder on that date, you do not qualify for the new shares.
For those who do qualify, the new shares are credited without the holder paying cash or surrendering existing shares. You end up holding both the old company and the new one.
What does a demerger do to your share of the company?
If the demerger leaves each shareholder’s proportion of the new company identical to their proportion of the old one, SEBI treats it as no change in shareholding pattern. SEBI, the Securities and Exchange Board of India, is the market regulator. Shareholding pattern means the breakdown of who owns what percentage of a company.
For example, if you own 1% of the old company, you would own 1% of the new one.
What happens to fractions of a share?
Schemes set entitlements by a ratio, and the ratio does not always divide evenly into your holding. Under SEBI’s framework, fractional entitlements are pooled and held by a trust. The trust sells the resulting shares in the market within 90 days of allotment, which is when the new shares are issued.
Here is a hypothetical example, with all figures invented for illustration. Suppose a scheme gives 1 new share for every 8 shares held, and you hold 300 shares. 300 ÷ 8 = 37.5, so you would be credited with 37 whole shares. The remaining 0.5 share is a fractional entitlement, and it goes into the pool. How that fraction is settled for you would be set out in the scheme document.
What checks does a listed company’s scheme go through?
Under SEBI’s listing regulations, a listed company must file its draft scheme with the stock exchanges, such as BSE and NSE. It needs an observation or no-objection letter from them before approaching a court or tribunal. The draft is therefore public before any court hearing.
The draft is the place to look for the ratio, the record date and the treatment of fractions.
Does pricing matter if the scheme issues shares to only some holders?
It can. Some listed-company schemes issue shares to a select group of holders, or to holders of an unlisted company. In those cases the pricing must follow SEBI’s ICDR pricing provisions, the SEBI rules that govern how issued shares are priced.
The scheme’s board approval date is the relevant date for pricing, meaning the reference date used in that calculation. If you are in a group that is not part of such an issue, you may receive nothing under it, so read who the scheme covers.
What if a parent company merges its own subsidiary into itself?
When a parent already holds shares in its subsidiary, those shares are cancelled once the scheme takes effect. That happens without further action by the shareholders. You do not need to file anything for the cancellation.
There is a regulatory difference for this type of deal. SEBI’s scheme-of-arrangement circular does not apply to schemes that only merge a wholly owned subsidiary, or its division, into its parent. A wholly owned subsidiary is one whose shares are entirely held by the parent. Such drafts must still be filed with the exchanges for disclosure, so the information is still public.
What are the catches?
– The record date is a hard cut-off. If you are not recorded as a holder on that date, you do not qualify for the new shares. – No cash is not the same as no effect. In the hypothetical example above, a holder of 300 shares gets 37 new shares and a 0.5-share fraction that is pooled and sold by the trust, so part of the entitlement is not delivered as shares. – An unchanged proportion does not mean an unchanged value. SEBI’s “no change in shareholding pattern” treatment covers ownership percentages only. This article does not cover how market prices move after a scheme. – Not every scheme looks the same. Pricing rules apply to some share issues, and a parent-subsidiary merger sits outside the SEBI circular, so the draft scheme is the document that tells you which rules apply.
Where can you see the terms of a specific scheme?
Start with the draft scheme the company files with the stock exchanges. It should state the record date, the entitlement ratio and how fractions are handled. For a parent-subsidiary merger, the same filing will show that the scheme is covered only by the disclosure requirement.
Sources and last check
Facts in this article were checked against the sources below on 1 November 2026. Rules and figures can change; check the primary source before acting.
- business-standard.com (financial press)
- upstox.com (broker education)
- groww.in (broker education)
- nsearchives.nseindia.com (regulator or exchange)
- bseindia.com (regulator or exchange)
This article is general information, not investment advice. MyFinanceBandhu is not a SEBI-registered investment adviser.
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