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LAW 200 Assignment Topic: “Amalgamation occurs when two or more companies are joined to form a third entity or one is absorbed into or blended with another”—explain & illustrate.”

1. INTRODUCTION:

In general, amalgamation means the process of combining or uniting multiple entities into one form. The Related Terms of amalgamation are Merger and Consolidation. The joining of two or more corporations, either by merger or by consolidation is called amalgamation. In business, Amalgamation is nothing but joining of two companies.  Amalgamation is like an arrangement or reconstruction. It is a legal process by which two or more companies are to be absorbed or blended with another. As a result, the amalgamating company loses its existence and its shareholders become shareholders of new company or the amalgamated company. In case of amalgamation a new company may came into existence or an old company may survive while amalgamating company may lose its existence.

There are different forms of business combinations and amalgamation is one of them:1

Statutory Merger: a business combination that results in the liquidation of the acquired company’s assets and the survival of the purchasing company.

1.see in Consolidation (business)

From Wikipedia, the free encyclopedia

Statutory Consolidation: a business combination that creates a new company in which none of the previous companies survive.

 Stock Acquisition: a business combination in which the purchasing company acquires the majority, more than 50%, of the Common stock of the acquired company and both companies survive.
Amalgamation: Means an existing Company which is taken over by another existing company. In such course of amalgamation, the consideration may be paid in "cash" or in "kind", and the purchasing company survives in this process.
For example: one company called COCA. Another company called COLA. Now, COCA is running loss only and COLA also running loss so these two companies agreed to Amalgamation after these two companies are made a new company called COCA-COLA.
2. AMALGAMATION BY CLASSIFYI NG:2
       (I) Amalgamation in the nature of merger, and
(ii) Amalgamation in the nature of purchase.

1. Amalgamation in the nature of merger:

An amalgamation is called in the nature of merger if it satisfies all the following condition:

  • All the assets and liabilities of the transferor company should become, after amalgamation; the assets and liabilities of the other company.
  • Shareholders holding not less than 90% of the face value of the equity shares of the transferor company (other than the equity shares already held therein,

2. SEE IN MBA KHOWLEDGE BASE.COM

immediately before the amalgamation, by the transferee company or its subsidiaries or their nominees) become equity shareholders of the transferee company by virtue of the amalgamation.

  • The consideration for the amalgamation receivable by those equity shareholders of the transferor company who agree to become equity shareholders of the transferee company is discharged by the transferee company wholly by the issue of equity share in the transferee company, except that cash may be paid in respect of any fractional shares.
  • The business of the transferor company is intended to be carried on, after the amalgamation, by the transferee company.
  • No adjustment is intended to be made in the book values of the assets and liabilities of the transferor company when they are incorporated in the financial statements of the transferee company except to ensure uniformity of accounting policies.

Amalgamation in the nature of merger is an organic unification of two or more entities or undertaking or fusion of one with another. It is defined as an amalgamation which satisfies the above conditions.

2.   Amalgamation in the nature of purchase:

Amalgamation in the nature of purchase is where one company’s assets and liabilities are taken over by another and lump sum is paid by the latter to the former. It is defined as the one which does not satisfy any one or more of the conditions satisfied above.

1.                All the properties of amalgamating company(s) should vest with the amalgamated company after amalgamation.

2.                All the liabilities of the amalgamating company(s) should vest with the amalgamated company after amalgamation.

3.                Shareholders holding not less than 75% in value or voting power in amalgamating company(s) should become shareholders of amalgamated companies after amalgamation

Amalgamation does not mean acquisition of a company by purchasing its property and resulting in its winding up. According to Income tax Act, exchange of shares with 90%of shareholders of amalgamating company is required.

Company is formed when in the process of the amalgamation; the combined

company is formed out of the transaction. The amalgamated company is otherwise called the transferee company. The company or companies, which merge into the new company, are called the transferor companies and, the company, into which the transferor companies merge, is known as the transferee company. 3

A parent company can acquire another company in two ways: 4

  • By purchasing the net assets.
  • By purchasing the common stock of another company.

3. Terminology: Parent-subsidiary relationship: the result of a stock acquisition where the parent is the acquiring company and the subsidiary is the acquired company.

Controlling Interest: When the parent company owns a majority of the common stock.

Non-Controlling Interest or Minority Interest: the rest of the common stock that the other shareholders own.

Wholly owned subsidiary: when the parent owns all the outstanding common stock of the subsidiary.

4. see in Consolidation (business)

From Wikipedia, the free encyclopedia

Purchase of Net Assets

Treatment to the acquiring company: When purchasing the net assets the acquiring company records in its books the receipt of the net assets and the disbursement of cash, the creation of a liability or the issuance of stock as a form of payment for the transfer.

Treatment to the acquired company: The acquired company records in its books the elimination of its net assets and the receipt of cash, receivables or investment in the acquiring company (if what was received from the transfer included common stock from the purchasing company). If the acquired company is liquidated then the company needs an additional entry to distribute the remaining assets to its shareholders.

Purchase of Common Stock

Treatment to the purchasing company: When the purchasing company acquires the subsidiary through the purchase of its common stock, it records in its books the investment in the acquired company and the disbursement of the payment for the stock acquired.

Treatment to the acquired company: The acquired company records in its books the receipt of the payment from the acquiring company and the issuance of stock.The Companies Act 1993 deals with these in two ways, depending on whether the amalgamating companies: 5

5.see In buisness.govt.Nz; ministry of economic development.

1. Are unrelated (there can be exceptions to this) – sometimes referred to as long form amalgamations where compensation for the lost investment represented by canceling the shares in the company or companies to be removed is the key feature, as covered by sections 219-221 Companies Act 1993; or

2. Are within a group or have common shareholding, directly or indirectly – referred to as short form amalgamations, as covered by section 222(1) or (2) Companies Act 1993, as the case may be.  These are short, as there is no shareholder participation, no notice to shareholders and no public notice.

Amalgamation signifies blending of two or more existing companies into one company, the blended companies losing their identities and forming themselves into a separate legal identity. Amalgamation is an arrangement, whereby the assets and liabilities of two or more companies become vested in another company (which may or may not be one of the original companies) and which would have as its shareholders substantially, all the shareholders of the amalgamating companies. Two or more existing companies amalgamate and a new company is formed. As such all existing companies amalgamating disappears and a new company comes into the existence.6http://www.business.govt.nz/companies/learn-about/updating-company-details/amalgamations/apply-for-an-amalgamation-online

6. Very often, the two expressions “merger” and “amalgamation” are taken as same. But there isa very minor difference. Merger is restricted to a case where the assets and liabilities of the companies get vested in another company, the company which is merged losing its identity and its shareholders becoming shareholders of the other company.

Amalgamation is also used in the sense of amalgamating of two or more municipalities to affect cost-savings in the provision of otherwise duplicative municipal services. 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.”7

3. TYPES OF AMALGAMATION:

Essentially, there are two types of amalgamation, namely

1. Long form amalgamations and

2. Short form amalgamations.

1. Long form amalgamations: The former are used where the companies proposing to amalgamate are not part of the same group. Long form amalgamations require shareholder approval for which purpose a document called an ‘amalgamation proposal’ must be prepared and sent to each shareholder. The amalgamation proposal must describe the terms on which the amalgamation is proposed to be effected. They range from 2 to 3 pages in length to up to 50 pages, depending on the complexity of the arrangements being proposed.

2. Short form amalgamations: The latter is used where it is proposed to amalgamate a company with one or more subsidiaries or sister (commonly owned) companies. These contrast with short form amalgamations which simply require approval of the Boards of the respective companies to the amalgamation and which are administratively simple to achieve.

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

Short form amalgamations are an ideal tool for removing group companies that have become redundant and are no longer wanted. They nevertheless demand

management time through the need to prepare accounts, annual returns, and tax returns. It is certainly worth getting rid of these unwanted companies by amalgamating them rather than liquidating them.

4. AMALGAMATION POTENTIAL ADVANTAGES AND DISADVANTAGES:

The desired outcome of structural reform is a strong sustainable local government. The Department for Local Government and Regional Development advise that there is a range of benefits that will be achieved through the reform process. 8

Potential Advantages

• increased capacity for local government to better plan, manage and deliver services to their communities with a focus on social, environmental and economic sustainability;

• increased capacity for local government to have adequate financial and asset management plans in place;

• enhanced efficiency in the processing of planning, building and other licence applications made by business and the community;

• Greater ability to attract and retain staff including the provision of further career development opportunities;

• Greater competition for positions on council and, in conjunction with other reforms, potential for enhanced governance capacity; and

8.  sees in shire of mundaring at handout 1. AMALGAMATION POTENTIAL ADVANTAGES AND DISADVANTAGES

• Larger local governments with greater capacity to partner with State and Federal Government, and the private sector, to further improve services to communities.

Potential Disadvantages

• Potential loss of local identity: if amalgamation occurs communities of interest may be significantly different

• Loss of representation: fewer councilors suggest that it could be more difficult for community members to know or obtain access to elected members

• Time and resource consuming -: if amalgamation occurs, substantial resources would be required to implement

• Time to achieve cost savings-: experiences in other states indicate that cost savings through perceived economies of scale are not realized for a number of years, if at all (to date no empirical evidence to support savings through amalgamations in other states.)

• Significant cost increase: the cost of reform when amalgamations occur can be significant and would include locating suitable sites and accommodating a larger workforce in new or upgraded central facilities

• Rationalization of major systems such as information technology systems, town planning schemes, human resource management practices, staff redundancies for example.

5. CONCLUSION:

Amalgamation is the blending of two or more existing companies into one undertaking, the shareholder of each blending companies becoming substantially the shareholders of company which will carry on blended undertaking. There may be amalgamation by transfer of one or more undertaking to a new company or transfer of one or more undertaking to an existing company. Amalgamation signifies the transfers of all are some part of assets and liabilities of one or more than one existing company or two or more companies to a new company.

The result of an amalgamation is that each of the amalgamating companies, except the amalgamated company, ceases to exist. For example, if Company A amalgamates with Company B and Company A is the amalgamated company, Company A survives and Company B does not. Alternatively, it might be desirable to establish a new company, Company C, to be the amalgamated (surviving) company to which the businesses of Company A and Company B are transferred. In that case both Company A and Company B would be struck off and cease to exist. Their businesses would continue to operate through Company C. Actually amalgamation is the means of merging the assets and liabilities of two or more amalgamating companies, with one continuing as the amalgamated company, and the other or others being removed from the register.

BIBLIOGRAPHY

1. AllInterview.com (share your knowledge)

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

3. Buisness.govt.Nz; ministry of economic development.

4. Wikipedia, the free encyclopedia

5. MBA knowledge base.com

6. Meech, B., brookfields lawyers.com, Amalgamations.

7. Quebec.com.

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