Mergers involve transfer of shares. Since a firm does not have shares, a firm cannot be technically "merged" with a public lmited copmany. However, it can be "sold-off" to the public limited company or more technically speaking the public limited can 'buy-out" the firm. The procedure will be as follows :-
1. Evaluation of the Firm's assets and liabilities.
2. Passing of Special Resolution by the Public Limited Company to buy-out the firm.
3. Approval by the Board of Directors of the Public Limited Company.
4. Referring the proposal to High Court for Orders.
5. Once the High Court issues the orders, the Firm will stand "merged" with the public limited company.
For taxation purpose, the date of merger is very important and should be very clearly spelt out in the agreement of "buy-out'. Generally the date of High Court Orders is taken as the date of merger.
Regading Income Tax, if the Firm had accumulated losses, the public limited company can take tax advantage towards absorbing the losses and unabsorbed depreciation. If the firm was in profit and had cash surplus, capital gains tax will be applicable towards the same.