It combines 2 or more 2 companies into a new organization. An Amalgamation is particular from consolidation because neither company gets by as a lawful element. All things being equal, a new substance is framed to house the combined resources and liabilities of the two organizations.
This term generally comes out of very popular usage in the United States. Some terms like consolidation or merger also replace this term. But, in some countries, it is very commonly used in India.
- Amalgamation is the process of combining two or more companies into a single entity.
- It can be either through forming a new company or acquiring one company from another.
- Amalgamation can help companies to gain economies of scale, reduce competition, and increase their market share.
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 weak company—is consumed into the more grounded transferee organization, consequently framing a unique organization. This prompts a stronger and bigger client base and 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 assets. In this, all the assets and liabilities of the transferor company became of the transferee company.
- The second type of Amalgamation: This type of Amalgamation is a kind of purchase. Here one company buys the other company. It means the stronger or bigger company buys the weaker or smaller company and all its 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 governing body of each organization settles the terms of Amalgamation. The arrangement is arranged and submitted for endorsement. For example, the High Court and the 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 the Advantages of Amalgamation.
- By opting for 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 to expand its business.
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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.