In the month following the sale and the remaining

Question:”amalgamation occurs when two or more companies are joined to form a third entity all one is absorbed into or blended with another”-explain and illustrate.


Amalgamation is meant whereby either two companies are joined to form a third entity or one is absorbed into or blended with another. The term ‘amalgamation’ not only contemplates joining of two companies to form a new company but also absorption of one company into the other company or blending of one into the other. Thus, a scheme of amalgamation two or more companies are merged de jure by consolidating their undertakings or de facto by acquiring the controlling interest in the share capital of one by the other or the capital of both by a new company. A scheme of amalgamation is an arrangement between the transferor company and its shareholders as well as the transferee company and its shareholders. Generally, Amalgamation means merger. Where, merger is defined as combination of two or more companies into a single company where one survives and the others lose their corporate existence. The survivor acquires the assets as well as liabilities of the merged company or companies. Generally, the company which survives is the buyer which retains its identity and the seller company is extinguished.2006 will be remembered in India’s corporate history as a year when Indian companies covered a lot of new ground. They went shopping across the globe and acquired a number of strategically significant companies. This comprised 60 per cent of the total mergers and acquisitions (M&A) activity in India in 2006. And almost 99 per cent of acquisitions were made with cash payments.[1]Now a day amalgamation is the complex and conspicuous implementation for the company growth and extend. Amalgamation bring not only bring advantages  for the company as  increase market share, tax reduction, higher quality and cost efficiency but also bring disadvantages.

2.Synonyms:synonyms of amalgamation are amalgamate, conflate, unite, blend, mingle, coalesce, unify, commix, mix in, jumble, merge, combine, mix, commingle, flux, desegregate, integrate, ruffle, meld, fuse, immix, shuffle.

3. Amalgamation in term of business: In business[2], it often refers to the mergers and acquisitions[3] of many smaller companies[4] into much larger ones. In the context of financial accounting[5], consolidation refers to the aggregation of financial statements[6] of a group company as a consolidated account[7]. The taxation[8] term of consolidation refers to the treatment of a group of companies and other entities as one entity for tax purposes. Under the Halsbury’s Laws of England[9], ‘amalgamation’ is defined as “a blending together of two or more undertakings into one undertaking, the shareholders of each blending company, becoming, substantially, the shareholders of the blended undertakings. There may be amalgamations, either by transfer of two or more undertakings to a new company, or to the transfer of one or more companies to an existing company”. Thus, the two concepts are, substantially, the same. However, the term amalgamation is more common when the organizations being merged are private schools or regiments. In this context, Ian Mac Fee Rogers wrote:

“An amalgamation has been defined as a fusion of two or more legal entities into a continued new union with the obligations, by-laws and assets of the former municipalities”.

For Example: one company called ABC. Another company called BCD .Now, ABC is running loss only and BCD also running loss so these two companies agreed to Amalgamation after these two companies are made a new company called ABCD.

4. TYPES of amalgamation: Business corporations that amalgamate must apply for or correct the articles of amalgamation. The board of directors of each business corporation that amalgamates must adopt a resolution and the articles of amalgamation. A director of each of the business corporations that amalgamates must sign these documents.

The Business Corporations Act provides for two types of amalgamation, i.e. ordinary and simplified

a) Ordinary amalgamation

An ordinary amalgamation is a merger of at least two business corporations into a single entity. To carry out an ordinary amalgamation, the business corporations must sign an amalgamation agreement, which establishes the terms and conditions of the amalgamation (the agreement must contain certain provisions required by law). The directors of each of the business corporations must adopt a by-law approving the amalgamation agreement, which must be ratified by two-thirds of the shareholders present at the special general meeting held for that purpose.

b) Simplified amalgamation

A simplified amalgamation can be either the merger of a parent company with at least one of its subsidiaries, all of whose shares it owns, or the merger of two or more subsidiaries of the parent company. To carry out a simplified amalgamation, it is not necessary to sign an amalgamation agreement or to adopt an amalgamation by-law and have the shareholders of the corporations that are merging ratify it.[10]

If the corporation resulting from an ordinary amalgamation opts for a new name, the articles must be accompanied by a name search report.

The procedure to follow to obtain a new name is the same as that for requesting a name change. To obtain additional information, please consult the Amendment of articles of incorporation subsection. The enterprise registrar will register the corporation resulting from an ordinary amalgamation in the enterprise register by filing there a copy of the articles of amalgamation and the documents appended thereto along with an amalgamation certificate. A copy of the articles and the certificate will be sent to the corporation or its representative.

4. Merger by definition: The absorption of one corporation by another. The term merger is used in the law of corporations, real property law and copyright law.

a) Merger in Corporations Law

The absorption of one company by and within another (a merger) is a form of amalgamation. In Kemos, Justice Roney[11] wrote:

“A merger is the absorption of one corporation into another”.”Amalgamation is used to designate a consolidation or merger.”

Similarly, in Fordyce[12], this, from Justice Groner:

Merger is said take place when one of corporation retains its existence and succeeds s to the franchise and acquires the property and assets of others.

“The merged corporation ceases to exist and the merging corporation alone survives.”

b)Merger in Real Property Law

Merger occurs when a smaller piece of land is swallowed up within the creation of a larger piece of land. Many jurists1 simply defer to the definition of merger provided by William Blackstone almost 300 years ago, in his Commentaries:

“Whenever a greater estate and a less coincide and meet in one and the same person, without any intermediate estate, the less is immediately annihilated; or, in the law phrase, is said to be merged, that is, sunk or drowned, in the greater.”

For example: this from Justice Dickson in Fraser-Reid[13]:

“[I]n real estate law merger occurs when two estates coalesce through a vesting in the same person at the same time in the same right. For example, when a tenant for years acquires the reversion in fee simple the term of years is merged or, more colorfully phrased, it is annihilated or drowned.”

In contract law, as it relates to real property, the doctrine of merger also forces the completion of an otherwise unfinished sales contract by the completion of the deed of sale. In Despault, Justice Cumming wrote[14],

“He doctrine of merger … asserts that the execution of a deed as required by an agreement for a sale of land results in the agreement being superseded by the deed, or merged in the deed. Such an agreement depends on the theory that the purchaser agrees to accept the conveyance in substitution for the rights under the agreement. However, merger depends upon the parties’ actual intent in every case.”2

c) Merger in Copyright Law:

In the context of copyright law, Justice Morden noted these words in Delrina[15]:

“If an idea can be expressed in only one or in a very limited number of ways, then copyright of that expression will be refused for it would give the originator of the idea a virtual monopoly on the idea. In such a case, it is said that the expression merges with the idea and thus is not copyrightable.”

5. Non-profit legal persons:

All legal persons constituted pursuant to the provisions in Part III of the Companies Act that plan to amalgamate to form a single legal person must apply for letters patent of amalgamation.

In order to amalgamate, the non-profit legal persons must have adopted by their respective boards of directors:

an act of agreement that establishes the terms and conditions of the amalgamation;

the means of putting it into effect;

the name of the new legal person;

the names, occupations and addresses of the acting directors;

the method of electing subsequent directors;

All other details necessary to carry out the amalgamation and provide for the subsequent administration and operation of the new legal person.

The act of agreement must be submitted to the members of each legal person and must be adopted by at least two-thirds of the members present at a special general meeting held for that purpose.

A joint application from the legal persons that wish to amalgamate must be submitted to the enterprise registrar for the issuing of letters patent confirming the act of agreement accompanied by a solemn affirmation, of the act of agreement certified by the secretary of each of the legal persons concerned.

The enterprise registrar will register the non-profit legal person resulting from an amalgamation in the enterprise register by filing there the letters patent of amalgamation. A copy of the letters will be sent to the legal person or its representative.

6.Legal Aspect of Mergers

The amalgamations can be by merger of companies within the provisions of the Companies Act, acquisition through takeovers and through BIFR sanctions. There will be more mergers and takeovers in the near future consequent upon the streamlining of the legal framework, removal of certain provisions in the MRTP Act and introduction of certain provisions in Budget 99.

Halsburrys Laws of England defined amalgamation as a blending of two or more existing undertakings, the shareholders of each blending company becoming substantially the shareholders in the company which is to carry on the blended undertaking. Accordingly, in a merger, two or more companies combine into a single unit and loss their separate identity.

7. Scheme of merger/amalgamation:

Whenever two or more companies agree to merge with each other, they have to prepare a scheme of amalgamation. The acquiring company should prepare the scheme in consultation with its merchant banker/ financial consultant. The main contents of a model scheme, are listed below

Description of the transfer and the transfer company and the business of transferor.

Their authorized, issue and subscribed/ paid-up capital

Basis of scheme; the main terms, of the scheme in self’-contained paragraph on the recommendation of valuation report, covering transfer of asset/liabilities, transfer date, reduction or consolidation of capital, application to financial institution as lead institution for permission and so on.

Change of name, object clause and accounting year .

Protection of employment

Dividend position and prospectus

Management: board of director banking their number and participation and transfer company’s director on the  board

Application under section 391and 394 of the companies act, 1956, to obtain high course approval

Expenses of amalgamation

Condition of the scheme to become effective and operative, effective date of amalgamation

The basis of merger/ amalgamation in the scheme should be the report of the value’s of asset of both the merger partner companies. The scheme should be prepared on the basis of the values report; reports of the charter accountant engaged for financial analysis and fixation of exchange ratio, report of auditors and audited account of both the companies prepared up to the appointed date. It should be ensured that the scheme is just and equitable to the shareholders, employees of each of the amalgamating company and to the public.

8. Benefits of amalgamation: Benefits of Mergers and Acquisitions are manifold.

The main benefits of Mergers and Acquisitions are the following:

a)Greater Value Generation:

Mergers and acquisitions often lead to an increased value generation for the company. It is expected that the shareholder value of a firm after mergers or acquisitions would be greater than the sum of the shareholder values of the parent companies. Mergers and acquisitions generally succeed in generating cost efficiency through the implementation of economies of scale.

b)Tax gains:

Merger & Acquisition also leads to tax gains and can even lead to a revenue enhancement through market share gain.

c)Gaining Cost Efficiency:

When two companies come together by merger or acquisition, the joint company benefits in terms of cost efficiency. A merger or acquisition is able to create economies of scale which in turn generates cost efficiency. As the two firms form a new and bigger company, the production is done on a much larger scale and when the output production increases, there are strong chances that the cost of production per unit of output gets reduced. An increase in cost efficiency is affected through the procedure of mergers and acquisitions.

d) Increase market shares:

An increase in market share is one of the plausible benefits of mergers and acquisitions. In case a financially strong company acquires a relatively distressed one, the resultant organization can experience a substantial increase in market share. The new firm is usually more cost-efficient and competitive as compared to its financially weak parent organization.

e) Others beneficial:

When a firm wants to enter a new market

When a firm wants to introduce new products through research and development

When a forms wants achieve administrative benefits

To increased market share

To lower cost of operation and/or production

To gain higher competitiveness

For industry know how and positioning

For financial leveraging

To improve profitability and EPS

9. Lacking of amalgamation:

Creating a monopoly with a merger can contravene the provision of the Competition Act

Staff may have to be reduced, eg. two amalgamated companies will have two financial directors and the new company need only employ one

reluctant shareholders may try to prevent an amalgamation – the minority shareholders may have to be paid out in cash

healthy competition may be eliminated

there may be more debts to pay

10. Example in amalgamation

a) Singapore transport company: In 1965, the state of the public transport system was extremely unsatisfactory because busses were too old, slow, poor management and inadequate capacity with growth population. The main bus operator was the Singapore Traction Company (STC), had a 30-year monopoly business plying routes in the city area and many small and individual Chinese private bus companies, each plying a small part of the rural and fringe areas of the island. Therefore a simple journey from the East to the West of the island could involve several bus transfers, and could last a few hours aboard noisy and rickety buses. Singapore Traction Company had a 30-year monopoly. In the late 1950s, Militant bus workers, manipulated by communist-controlled unions, resorted to strikes in a demand for better work conditions and pay. Famous bus strike was the Hock Lee bus riots on May 12, 1955, where workers from the Hock Lee Amalgamated Bus Company , Singapore Bus Workers’ Union (SBWU) and Students from the Chinese Middle schools . The situation was so bad that in 1955 to 1956, the Chinese bus companies were hit by a total of 57 strikes which crippled the country’s transport system. Early seventies century Singapore government stepped to recognize transport systems. Many small bus companies were amalgamated into three larger bus companies, namely the Amalgamated Bus Company Ltd, Associated Bus Services Pte Ltd, and the United Bus Ltd. They were grouped into three regional sectors. Notwithstanding the reorganization, bus services still did not improve much because of frequent breakdowns, overcrowded buses, and irregular fare and route structures. During this time STC closed down its operations due to large financial losses. In 1973, the three main bus companies were merged into a one single organization which is Singapore Bus Service (the predecessor of SBS Transit). On 31 May 1982 Trans-Island Bus Services Limited was form as the second major public bus operator in order to improve government transfer 14 sbs service to Trans –island bus services. Singapore bus service changed its name to SBS Transit Limited that reflects its status as a multi-modal transport operator, as it had won the tender to operate the new North East Line and the Sengkang/Punggol Light Rapid Transit Lines. In late 2001, Trans-Island became a subsidiary of the Singapore Mass Rapid Transit Corporation (SMRT). Trans-Island Bus Service was renamed as SMRT Buses Ltd which made a planned to convert bus into air conditions systems on 10 May 2004.

b)Amalgamation example in Sony Ericsson:

Sony Ericsson Mobile Communications AB is a joint venture established on October 1, 2001[16]by the Japanese consumer electronics company Sony Corporation and the Swedish telecommunications company Ericsson to manufacture mobile phones. The stated reason for this venture is to combine Sony’s consumer electronics expertise with Ericsson’s technological knowledge in the communications sector. Both companies have stopped making their own mobile phones.

11. Conclusion:

The completion of an amalgamation does not ensure the success of the resulting organization; indeed, many mergers (in some industries, the majority) result in a net loss of value due to problems. For the amalgamation not to be considered a failure, it must increase shareholder value faster than if the companies were separate, or prevent the deterioration of shareholder value more than if the companies were separate. There can be several benefits and drawbacks from a amalgamation to an existing business but it will really depend on whose side of the merge we are looking from. For instance, a technology company may acquire another one as a means to gain market share. It is not uncommon for the products of the amalgamated company eventually disappear or its technology to make its way into the products of the amalgamator. So from the standpoint of the company being amalgamated, there were no benefits. If the company that was amalgamated is left as a stand-alone company and can benefit from larger economy of scale, easier access to capital, and better distribution channel, then it was a win-win for both companies.


Kemos Inc. v Bader, 545 F. 2d 913 (1977)

Rogers, I. M., The Law of Canadian Municipal Corporations, Vol. 1 (Toronto: Carswell, 2003), p. 71

Town of Antigonish v. Municipality of the County of Antigonish 2006 NSCA 29 (which quotes from Rogers, op.cit.)

Delrina Corp. v. Triolet Systems Inc., 58 O.R. (3d) 339; 17 C.P.R. (4th) 289; 23 B.L.R. (3d) 231 and at 156 O.A.C. 166 (2002, ONCA)

Despault v. King West Village Lofts Ltd., 10 CPC (5th) 89 (OSCJ, 2001)

Fordyce v Helvering, 76 F. (2d) 431 (1935). See also Ahles Realty v Commissioner of Internal Revenue 71 F. (2d) 150 (1934)

Kemos Inc. v Bader, 545 F. 2d 913 (1977)

Yarley (China) Developments Co. v. Amber Equities Inc., 43 Alta. L.R. (3d) 239, 5 R.P.R. (3d) 121, [1996] 10 W.W.R. 479 (note 1)

Fraser-Reid v. Droumtsekas, [1980] 1 S.C.R. 720

Reverse Merger in the glossary of

Delrina Corp. v. Triolet Systems Inc., 2002

Fraser-Reid v. Droumtsekas, [1980] 1 S.C.R. 720

. Retrieved 2009-06-30.

DePamphilis, D. Understanding Mergers, Acquisitions, and Other Corporate Restructuring Terminology


[2] See in  (Sullivan, arthur; Steven M. Sheffrin (2003). Economics: Principles in action. Upper Saddle River, New Jersey 07458: Pearson Prentice Hall. p. 29. ISBN 0-13-063085-3 ).

[3] See in DePamphilis, D. Understanding Mergers, Acquisitions, and Other Corporate Restructuring Terminology(5th edition, Elsevier Academic Press, 2010),The phrase mergers and acquisitions (abbreviated M&A) refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling and combining of different companies that can aid, finance, or help a growing company in a given industry grow rapidly without having to create another business entity.

[4] See in a b c d Black’s Law and lee Dictionary(Second Pocket Edition) Bryan A. Garner, editor. West 2001.

[5] See in Framework, Par 104 (a)[1], ‘Financial accountancy (or financial accounting) is the field of accountancy concerned with the preparation of financial statements for decision makers, such as stockholders, suppliers, banks, employees, government agencies, owners, and other stakeholders. Financial capital maintenance can be measured in either nominal monetary units or units of constant purchasing power. The fundamental need for financial accounting is to reduce principal-agent problem by measuring and monitoring agents’ performance and reporting the results to interested users.

[6] See in (Presentation of Financial Statements” Standard IAS 1, International Accounting Standards Board. Accessed 24 June 2007.

[7] Consolidated financial statements are financial statements that factor the holding company’s subsidiaries into its aggregated accounting figure

[8] See in ^ a b Black’s Law Dictionary, p. 1307 (5th ed. 1979).

[9] ^ a b

[10] The corporation resulting from a simplified amalgamation must, if it has not already done so, file the current updating declaration required by the Act respecting the legal publicity of enterprises.

[11] Kemos Inc. v Bader, 545 F. 2d 913 (1977

[12] Fordyce v Helvering, 76 F. (2d) 431 (1935). See also Ahles Realty v Commissioner of Internal Revenue 71 F. (2d) 150 (1934)

[13] Fraser-Reid v. Droumtsekas, [1980] 1 S.C.R. 720.I

[14] Despault v. King West Village Lofts Ltd., 10 CPC (5th) 89 (OSCJ, 2001),T,20.

[15] Delrina Corp. v. Triolet Systems Inc., 58 O.R. (3d) 339; 17 C.P.R. (4th) 289; 23 B.L.R. (3d) 231 and at 156 O.A.C. 166 (2002, ONCA)

[16] ^ a b “Ericsson – press release”. Cision Wire. Retrieved 2001-10-01.