The merging of two or more organizations, which should be recognized as separate legal entities by the jurisdiction’s laws, is known as an amalgamation.
What Is an Amalgamation?
An amalgamation is the merging of two or more organizations. An organization can be a business, non-profit organization, society, trust or any other entity recognized as a separate legal entity by that jurisdiction’s laws. An amalgamation occurs when two or more entities with separate legal identities merge their operations and functions into one company. In rare cases, it can also occur between two partnerships or unincorporated businesses operating under the same trade name, in which case the partnership would be dissolved and replaced by a new corporation.
What Are the Advantages of Amalgamation?
An amalgamation can bring a number of benefits to the companies involved. It allows two companies with different specialties to offer a wider range of services by combining their specialties. Additionally, through this method, two companies with different target markets combine their customer bases, providing a larger number of potential clients for both groups. It also facilitates the merger of financing sources, providing more capital for the newly formed corporation.
An amalgamation makes it easier for a company to obtain financing from banks or other sources of capital. This is because investors may feel more confident about an amalgamated company that shows diversity and stability in its source of financing compared to smaller companies that depend on smaller investors.
Disadvantages of Amalgamation
While an amalgamation can provide many benefits, it can also introduce some challenges. It may make it more difficult for the newly formed company to operate as efficiently as the two separate companies did before the merger. This is especially true if the two companies were using different business models or if one company was operating more efficiently than the other. If the newly formed company fails to make adjustments after the amalgamation, it may not be able to offer the same level of service as before the merger and may disappoint customers.
How Does Amalgamation Occur?
An amalgamation occurs when the board of directors of one or more companies agrees to combine with another company. This is usually done with the consent of each company’s shareholders, who must approve the transaction by voting for it at a shareholders’ meeting. Amalgamations are often completed through a process known as a “reverse take-over,” in which a smaller company acquires a larger one, often using the larger company’s shares as consideration. The smaller company then adopts the name of the larger company and operates under its name, with a view to expanding its market share.
Proposed Condition for Amalgamation
A proposed condition for the amalgamation is important. If a condition is unsatisfactory, the amalgamation should not be fulfilled. Some of these conditions include the source of funds, corporate structure, shareholding, the purpose of the new company, financing, exchange of shares and taxation.