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About Amalgamation In India
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About Amalgamation In India
About Amalgamation In India
Amalgamation is the blending of one or more companies into a new entity. When two or more companies come together to form a new company or when they decide to absorb or blend any one company by the other then the amalgamation takes place. An amalgamation of the company is different from the process of a merger. It is because neither of connecting companies survives as a legal entity at the end; a new entity is formed to house and consolidate the assets and liabilities of both companies.

Amalgamation is the process carried out between two or more companies who are engaged in the same line of activity and the operations. The companies can also combine for diversification of the activities or expansion of services.

The main reason for amalgamating of companies is to acquire cash resources, to eliminate competition, do tax savings, to operate economies of large scale, to increase the value of shareholders, to reduce the degree of risk by diversification and to achieve growth and gain financially.

Amalgamation is like the merger that tries to minimize the risk of the assets and liabilities and maximize advantages as well as the shareholders' interests, and the business of the companies. No adjustments are made to book value. All assets of the transferor company become of the transferee company.

After the amalgamation, the business of the transferor company is carried on. Shareholders of the transferor company who holds a minimum of 90% face value of equity shares become shareholders of the transferee company.

When another acquires one company and shareholders of the transferor company discontinue to have a share as per decided proportion in the equity of the amalgamated company, an amalgamation like purchase occurs when conditions for amalgamation like merger are not met.

The procedure of an Amalgamation is as follows:
  • - The terms and condition of amalgamation are always finalized by the board of directors of the Companies.
  • - Approval is given by the respective High Court when the amalgamation scheme is prepared and submitted.
  • - Approval of the shareholders of the companies is obtained.
  • - Approval of SEBI is obtained.
  • - A new company is formed and issues shares to the shareholders of the transferor company.
  • - The transferor company is liquidated and all the assets, liabilities are taken over by the transferee company.
The main purpose of amalgamation is to achieve benefit which arises, with the combination of the two entities jointly. 

Various other objectives of Amalgamation are as follows:
- To obtain the economies of scale
- To reduce competition
- To gain Goodwill and reputation 
- To reduce the risk through diversification
- To improve managerial effectiveness.

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