The board of directors of Reliance Industries has approved the merger between Reliance Petroleum Limited and Reliance Industries. This amalgamation is effective April 1, 2008.
The RIL board of directors has announced that on completion of amalgamation procedures, RPL shareholders will receive RIL shares in swap ratio at 1:16.
In simple words
For every 16 fully paid equity RPL shares you hold, the company would give one RIL share. So, if you hold 1,600 shares of RPL, the company would give 100 shares of RIL.
Odd lots?
What if you are holding 1,610 shares of RPL; what happens to these 10 shares? The company hasn’t officially communicated to the shareholders on how it plans to work it out.
However, the norm is the company would buy the fraction shares for cash from you. That is, it would give you 100 shares of RIL and pay you in cash for the remaining 10 shares of RPL.
Who buys fraction shares?
Lawyer Sajan Poovayya and the Managing Partner of Poovayya & Co, a law service firm, says usually the company appoints a trustee to buy the fraction shares from investors. The trustee will then pay cash for those fraction shares to these investors.
So what should you do?
Option 1: Our expert, Yogesh Chabria says, “I would suggest you buy six more shares or sell 10 shares of RPL to even them out. That is, you’ll either have 1,600 or 1,616 shares of RPL.”
This is a quicker solution than to wait for the company to buy those fraction shares because companies, usually, take two to three months to sell it for you.
Tax treatment: If you sell the fraction shares in the market on your own, and you have held these shares for less than a year, you’d be subjected to short term capital gains tax at 15 per cent.
Option 2: If you have fraction shares and your friend’s fraction shares add up to 16 shares of RPL, you could write to the trustee to jointly buy your shares and give one share of RIL in your joint name.
Tax treatment: If the trustee buys back your shares and pays you cash for them, you are not liable to pay any tax on it.
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