It is a combination of 2 or more than 2 companies into a new organization. An Amalgamation is particular from consolidation on the grounds that neither one of the companies included gets by as a lawful element. All things being equal, a totally new substance is framed to house the combined resources and liabilities of the two organizations.
This term generally come out of very popular usage in the United State. This term is also replaced by some terms like consolidation or merger. But, in some countries, it is very commonly used in India.
Understanding of Amalgamation
Amalgamation ordinarily occurs between at least two companies occupied with a similar line of business or those that share some comparability in tasks. Companies may join to broaden their activities or to grow their scope of services.
Since at least two companies are combining, amalgamation brings about the arrangement of a bigger entity. The transferor organization—the company which is weak—is consumed into the more grounded transferee organization, consequently framing a totally unique organization. This prompts a stronger and bigger client base and furthermore implies the recently shaped company has more resources.
Types of Amalgamation
- The first type of Amalgamation: In this type of Amalgamation, all the companies or the organizations come together in the process of Amalgamation by combining their liabilities, shareholder’s interest, and the assets. In this, all the assets and all the liabilities of the transferor company became of the transferee company’s.
- The second type of Amalgamation: This type of Amalgamation is a kind of purchase. Here one company buys the other company. It means that the stronger company or the bigger company buy the weaker or smaller company and its all the assets. In this Amalgamation, the company which is the transferor does not hold any of the shares in the equity after this Amalgamation.
The Procedure of Amalgamation
The terms of Amalgamation are settled by the governing body of each organization. The arrangement is arranged and submitted for endorsement. For example, the High Court and Securities and Exchange Board of India (SEBI) should endorse the investors of the new organization when an arrangement is submitted.
Now, the new company legally becomes an entity. After that, the new company issues the shares to the shareholders of the transferor company.
Advantages of Amalgamation
There are some of the Advantages of Amalgamation.
- By opting Amalgamation, the operating cost of the business can be curtailed.
- The controlled price of the goods in the market.
- Achievement of Diversification
- It is the best way for the company which wants to expand its business.