PRACTICE DETAILS
- Lawyer Mr. Shaman Jain
- Skills Change In Business
- CATEGORY Change In Business, Compliances
ABOUT THIS PRACTICE
Amalgamation is interpreted as the blend of one or more companies into a single new entity. It includes:
- Two or more companies combine to form a new company
- Absorption or blending of one by the other
Thereby, amalgamation includes absorption.
Existing companies A and B are wound up and a new company C is formed to take over the businesses of A and B
Existing company A takes over the business of another existing company B which is wound up
A New Company X is formed to take over the business of an existing company Y which is wound up.
How is Amalgamation different from a Merger?
Amalgamation is different from Merger as neither of the two companies under reference exists as a legal entity. Through the process of amalgamation an entirely new entity is formed which can possess combined assets and liabilities of both the companies.
Types of Amalgamation
- Amalgamation in the nature of merger: In this type of amalgamation, not just the assimilation of assets and liabilities takes place but also of the shareholders’ interests and the businesses of these companies. In other words, all assets and liabilities belonging to the transferor company become that of the transfer company. In this case, the business of the transferor's company aspires to be carried on after the amalgamation. There are no adjustments aimed to be made to the book values. The other conditions that need to be fulfilled include that the shareholders of the vendor company holding atleast 90% face value of equity shares become the shareholders’ of the vendee company.
- Amalgamation in the nature of purchase: This method is contemplated when the conditions for the amalgamation in the nature of merger are not satisfied. Through this method, one company is acquired by another, and as a result of that the shareholders’ of the company which is acquired generally do not continue to have proportionate share in the equity of the combined company or the business of the company which is acquired normally does not intend to continue.
Why Amalgamate?
- To acquire cash resources
- Eliminate competition
- Tax savings
- Economies of large scale operations
- Increase shareholders value
- To reduce the degree of risk by diversification
- Managerial effectiveness
- To achieve growth and gain financially
Procedure for Amalgamation
- The terms of amalgamation are finalized by the board of directors of the amalgamating companies.
- A scheme of amalgamation is prepared and submitted for approval to the respective High Court.
- Approval of the shareholders’ of the constituent companies is obtained followed by approval of SEBI.
- A new company is formed and shares are issued to the shareholders’ of the transferal company.
- The transferor company is then liquidated and all the assets and liabilities are taken over by the transferee company.
Accounting of Amalgamation
- Pooling of Interests Method: Through this accounting method, the assets, liabilities and reserves of the transfer or company are recorded by the transferee company at their current carrying amounts.
- Purchase Method: In this method, the transfer company accounts for the amalgamation either by incorporating the assets and liabilities at their current carrying amounts or by assigning the consideration to individual assets and liabilities of the transfer or company on the basis of their fair values at the date of amalgamation.
Advantages of Amalgamation
- Better way to terminate competition between the companies.
- Increases R&D facilities
- Reduced Operating cost
- Stability in the costs of the goods is maintained
Disadvantages of Amalgamation
- Eliminates healthy competition
- Can lead to cut down of employees
- One might have to pay Additional debt
- Business combination can give rise to monopoly in the market, which is not always positive
- The goodwill and identity of the old company disappears
