Amalgamation and demerger are two revenue-related terms used by corporates. Amalgamation is a process where the assets of two or more companies get joined with another company which may or may not be included in the set of formerly addressed companies.
Demerging is the process where some of a company’s assets are acquired by another company.
Key Takeaways
- Amalgamation is the process of combining two or more companies into a single entity; demerger separates a company into two or more distinct entities.
- Amalgamation aims to create synergies, cost savings, and market expansion; demerger focuses on enhancing operational efficiency, management focus, and unlocking shareholder value.
- In amalgamation, assets and liabilities of the merging companies are combined, while demerger involves distributing assets and liabilities among the newly created entities.
Amalgamation vs Demerger
Amalgamation is the process of two or more companies merging into a single entity, often resulting in the creation of a new company. Demerger is the separation of a company’s operations or assets into two or more separate entities, which may be done through spin-offs, carve-outs, or split-offs.
Amalgamation is a process where many companies give up their assets and income to another company and amalgamate with the latter. This may be due to the financial crisis or their business interest loss.
When merging occurs, only the shareholders with more than 75% share in the former company can have claims in the merged company.
The demerger is a process in which some of the portions of a company are bought by another company, or they undertake the former company. This process occurs primarily due to financial problems or the shortage of labourers. The shareholders are equally respected in both companies.
Comparison Table
| Parameter of Comparison | Amalgamation | Demerger |
|---|---|---|
| Process | Amalgamation is when two or more companies merge their shares with another company to become a single company. | The demerger is a process in which a company shares some of their rights with another company. |
| Share management | Only the shareholders having 75% or above shares in one of the merging companies can have shares in the merged company. | If a share is invested in a company before demerging, the same amount of claim is accessible to the investor from the demerged company after the process. |
| Partition | In amalgamation, the companies are getting legally combined into a new one. | The demerger is a process where the segregation of a company occurs. |
| Labels | The company which merges is called the transferor, and the company with all the merged companies is called the transferee. | The company which shares its rights is called the demerged company, and the company that accepts the shares is called the resulting company. |
| Existence | After amalgamation, the earlier companies lose their existence, and only the combined company exists. | The existence of both companies is acceptable. |
What is Amalgamation?
Amalgamation is the process by which two or more companies merge to form a single company. By doing so, the transferors involved in the process transfer all their rights and investments to the company which buys them.
This company is known as the transferee. This is a legal procedure, and all the updated norms will be followed.
When the process is completed, the liabilities and the properties of the companies that take the role of transferors are passed to the transferee. The transferee should accept all those norms; hence, the transferor is free of all debts.
A set of rules and regulations are made up, and all these provisions apply to the combined company.
Shareholders are an integral part of an industry. When a company is amalgamating with another, the shareholders with a share above 75% in the combined company have a chance of having a stake in the resulting company.
Section 2(1B) of the Income-tax Act 1961 reports amalgamation in India.
What is Demerger?
The demerger is an arrangement where some parts of a company or the undertaking charge of the company are transferred to another company.
This results in the distribution of a company, and hence the resulting company gets the advantage of operating another institution. Mostly demerging is done when a family asset gets split.
After emerging, the resulting company has to take up the charge of the liabilities and properties of the demerged company. But the resulting company can only accept these if the part comes under their properties.
Demerging is helpful in huge industries where a single board of directors cannot handle the pressure of a company individually. Section 72A(5) of the IT act specifies the rules for demergers in India.
Shareholders are given equal importance in the demerger. The amount of share a person has put in the demerged company is proportionally given to them in the resulting company.
This is not applicable if the resulting company is a shareholder in the demerged company. The shareholders having 75% shares in the demerged company automatically become shareholders of the resulting company.
Main Differences Between Amalgamation and Demerger
- Amalgamation is a process where two or more companies merge to form a single company. The demerger is the process of sharing administration with another company.
- Shareholders with more than 75% of shares in the transferor companies become the shareholders in the transferee during amalgamation. All the shareholders are treated equally in the demerger, and the proportionality of their claims can be redeemed in the resulting company.
- The legal process of becoming a single institution occurs during amalgamation, while a company gets segregated in the demerger.
- In amalgamation, the merging companies are called transferors, resulting in a transferee company. In emerging, a demerged company shares its parts with the resulting company.
- After amalgamation, only the transferee exists, while both companies can exist after the demerger.
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Chara Yadav holds MBA in Finance. Her goal is to simplify finance-related topics. She has worked in finance for about 25 years. She has held multiple finance and banking classes for business schools and communities. Read more at her bio page.
