Personnel planning and recruiting

Amalgamation occurs when two or more companies are joint to form a third entity or one is absorbed into or blended with another- explain and illustrate.

1. Introduction:

In general term, when two or more companies engage in similar nature of business join together and form a new company for running the business is called amalgamation. In fact, amalgamation is nothing but joining of two or more companies. One company join another company and after that they are making a new company, this is called amalgamation. Let say, there are two companies; one is ABC and the other one is BCD. Company ABC is running loss and BCD is also running loss. So these two companies decided to join together and form a new company, let say, ABCD. Here we see that these two companies went through the process of amalgamation

[1].Under the Halsbury’s Laws of England, ‘amalgamation’ was 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”[2].

2. Procedure for amalgamation

The terms merger and amalgamation have not been defined in the Companies Act, 1956 (hereinafter referred to as the Act) though this voluminous piece of legislation contains 69 definitions in Section 2. The terms merger and amalgamation are almost same and the term ‘amalgamation’, as per Concise Oxford Dictionary, means, ‘to combine or unite to form one organization or structure’. Any proposal of amalgamation or merger begins with the process of due diligence, as the proposal for merger without due diligence is like entering into a tunnel with darkness growing with each and every step. The due diligence process makes the journey see the light at the end of the tunnel – the light of wisdom to amalgamate or not. The Act and the relevant rules pertaining to amalgamation are to be followed scrupulously. The provisions of the Act also deal with compromise or arrangement within or without amalgamation or merger. Currentently, the High Court enjoys powers of sanctioning amalgamation matters under section 394 of the Act though it is a matter of time when this power will be exercised by National Company Law Tribunal, a forum where Chartered Accountants shall be authorized to appear. Not losing sight of this opportunity coming way of the Chartered Accountants, the seminar on this very topic, assumes greater significance and it is imperative that professionals like Chartered Accountants should keep themselves informed of the provisions relating to merger and amalgamations. The role of Chartered Accountants, in any amalgamation case, cannot be undermined as without their uncanny insight within the financial maze, no due diligence, valuation, share exchange ratio etc. can be accomplished.

3. Steps to be followed by

The procedure for the amalgamation of two companies has to be viewed from both sides. That means from the Transferor[3] and Transferee[4] Company’s sides. Therefore, the procedure has been divided into two parts i.e. procedure to be followed by the transferor company and the transferee company respectively.

a) Memorandum of Association: The memorandum of association must provide the power to amalgamate.

b) Board meeting: A board meeting will be held to consider and pass the following resolutions:

– Approve the draft scheme of amalgamation

– To authorize filing of application to the court for directions to convene a general meeting.

– To file a petition for confirmation of scheme by the High Court.

c) Application to the court: An application to the court shall be made for directions to convene a general meeting by way of judge’s summons supported by an affidavit. The summons should be accompanied by, a certified copy of M/A[5] of both companies.

d) Copy to regional director

e) Order of High Court: On hearing of the summons the High Court shall pass necessary order which will include:

– Time and place of meeting

– Chairman of the meeting

– Fixing the quorum

– Procedure to be followed in the meeting for voting by proxy

– Advertisement of the notice of the meeting

– The limit for the chairman to submit the report to the court regarding the result of the meeting.

f) Notice of the meeting: The notice of the meeting shall be sent to the creditors and/or shareholders individually by the chairman.[6]

g) Advertisement of notice of the meeting

h) Notice to stock exchange

i) Filling of affidavit for the compliance

j) General meeting: General meeting will be held to pass the following resolutions:

– Approving the scheme of amalgamation by 3/4th majority

– The resolution to empower directors to dispose of the shares not taken up by the dissenting shareholders at their discretion.

– An ordinary or special resolution shall be passed to increase the authorized share capital, if the proposed issue of shares exceeds the present authorized capital.

k) Reporting of result of the meeting

l) Petition: For approval of the scheme of amalgamation, a petition shall be made to the high court within 7 days of the filling of the report by the chairman

m) Sanction of the scheme

n) Stamp duty

o) Copy of order to be annexed: A copy of court’s order shall be annexed to every copy of the memorandum of association issued after the certified copy of the order has been filled with as aforesaid

p) Allotment of shares

4. Examples

When an amalgamation occurs then the company takes an amalgamated name. An amalgamated name is a name that is formed by combining several previously existing names. These may take the form of an acronym or a blend. Amalgamated names are most commonly used amalgamated business. For example, DHL, originally meaning Dalsey, Hillblom and Lynn. Grevan Spiridellis, screen name crediting both Greg and Evan Spiridellis. Exxon Mobil, a combination of the companies Exxon and Mobil created when the two oil companies merged in 1999. AZ, a Dutch football club that was formed in 1967 with the merger of two other clubs Alkmaar ’54 and FC Zaanstreek. Sanofi- aventis a leading global pharmaceutical group is also an example of amalgamation in our country. Sanofi-aventis has been formed due to the amalgamation of three legal entities – Aventis Limited, Fisons (Bangladesh) Limited and Hoechst Marion Roussel Limited.

5. Reasons for amalgamation

Merger and amalgamations are usually intended to achieve any or some or all of the following purposes. Various reasons and advantages of amalgamation are:

– Synergistic operational advantages – come together to produce a new or enhanced effect compared to separate effects.

– Economies of scale – reduction in the average cost of production, and hence in the unit costs, when output is increased, to enable to offer products at more competitive prices and thus to capture a larger market share.

-Reduction in production, administrative, selling, legal and professional expenses.

Benefits of integration – combining two or more companies under the same control for their mutual benefit by reducing competition, saving costs by reducing overheads, capturing a larger market share, pooling technical or financial resources. Cooperating on research and development, etc.  Integration may be horizontal or vertical and the latter may be backward integration or forward integration.

-Optimum use of capacities and factors of production.

-Tax advantages – carry forward and set off of losses of a loss-making amalgamating company against profits of a profit-making amalgamated company.

– Financial constraints for expansion – A company which has the capacity to expand but cannot do so due to financial constraints may opt for merging into another company which can provide funds for expansion.

– Strengthening financial strength.

– Diversification

– Advantage of brand –equity.

– Loss of objectives with which several companies were set up as independent entities

– Survival.

– Competitive advantage – The factors that give a company an advantage over its rivals.

– Eliminating or weakening competition.

– Revival of a weak or sick company.

– Sustaining growth.

– Mergers and amalgamations are also resorted to for achieving the following objectives:

– Accelerating company’s market power and reducing he severity or competition.

– Reducing tax liability.

6. Conclusion

Generally speaking, amalgamation happens to derive benefits by existing companies. Technically speaking amalgamation would generally happen between two or more group companies or subsidiaries to have larger balance sheet, to absorb a loss in one of the companies, cut costs etc. Companies can reduce competition, get tax benefit, can increase brand value and market price of the stock.[7]


1. <> retrieved on 31st march 2011

2. Reason for Merger and Amalgamation, <> retrieved on 1st

April 2011.

3. <> retrieved on 2nd April 2011

4. Consolidation (Business), <> retrieved on 2nd April 2011

5. Procedures for Mergers and Amalgamations under the Companies Act, 1956,

<> retrieved on 3rd April 2011.

[1] See,

[2] see,

[3] transferor is the company which is being transferred

[4] transferee is the company to which the company has been transferred

[5] memorandum of association

[6] this notice will enclose a copy of the proposed scheme of amalgamation, a form of proxy, an attendance slip, notice of the resolution for authorizing issue of shares to persons other than existing shareholders.

[7] For details, see,