Amalgamation — a process where the one company (transferee) absorbs another one or several companies (transferors) and forms a new entity. To do this, the company should belong to the same line of business.
The procedure of amalgamation has important advantages. It increases the resources of the company and saves it from superfluous taxes. Also, amalgamation helps to neutralize the competition between the companies belonging to one corporation and to manage them more effectively.
Difference between Amalgamation and merger
Amalgamation is often confused with a merger. However, these procedures have a subtle difference, even though they both describe the appearance of a juridical entity based on two preexisting ones.
Amalgamation is a process when a group of companies transforms into a new juridical entity. Usually, the procedure needs a minimum of three entities. Amalgamation should be initiated by all parties involved. The former companies shut down, but the shareholders get the shares transferred to a new company. All assets and liabilities also come into the balance sheet of the new identity.
A merger is a process where a group of companies gets united into one entity or one company absorbs another. This process is typically initiated by mergers and requires two entities at a minimum. As for shareholders of an absorbed entity, they receive their part in a new entity. The funds of acquired companies are joint.
Process of Amalgamation
- The management needs to sign the memorandum of association. This memorandum allows amalgamating.
- The management should organize the board meeting to approve the amalgamation.
- In case of approval, a new entity is formed.
- The companies should draw up the notice of the meeting and send it to the tribunal together with a plan of amalgamation.
- The companies should make a public statement about their changing status. They may advertise in a newspaper and place this information on a website.
- It is necessary to notify the statutory authorities or another appropriate body.
- The chairman or another responsible person files an affidavit and sends it to the tribunal a week before the session.
- The meeting occurs. A majority vote of three-fourths in the meeting should decide. The voting may be carried out in person, through postal, or by e-voting.
- Chairman submits the report of the meeting to the tribunal within an indicated time at the latest three days after the conclusion. Such a report should include the decision, list of presented members, number of votes pro et contra, mode of voting, and the value of votes.
- If the plan of amalgamation was confirmed, the company submits a petition to the tribunal.
- Tribunal sets a date for a hearing. This date should be published in the newspapers.
- Tribunal renders the order on the petition. Upon receipt, the company needs to submit a certified copy of this order to the Registrar of Companies within a month.