Amalgamation
Last Updated On -20 Mar 2025
The amalgamation process entails forming a single entity from two or more previously existing companies. This is a carefully planned strategic move by businesses to obtain a financial, operational, and competitive edge. The company formed after the amalgamation takes over the assets, liabilities, and operations. The banking, finance, and manufacturing sectors are the most common sectors practicing amalgamation.
A popular example of amalgamation would be the SBI merger with its five associate banks in 2017.
Key Reasons for Amalgamations
Amalgamations is a carefully executed plan to ensure smoother operations and long-term success.
The key reasons for amalgamations are:
- Expansion of business to enter new market or offer new products
- To achieve cost efficiency
- Reduction in competition and market dominance
- Achieve financial stability
What are the types of Amalgamation?
The type of amalgamation depends on its effects on the merger and purchase. The shareholders and the merging companies go through a major change, and business operations start to adjust to the new policies and reforms.
The amalgamation in the nature of the merger:
- The assets, liabilities, and the shareholders come together to form the merging companies.
- All the business operations go on as before
- The shareholders of the new entity are the shareholders of the merging companies
The amalgamation in the nature of purchase:
- The company acquiring the other company continues to exist as a new comoany
- The shareholders of the acquired company receive compensation as shares or cash
The Legal Procedures for Amalgamation
The Companies Act, 2013, and the guidelines of the regulatory bodies like the Securities and Exchange Board of India (SEBI) govern the process of amalgamation.
The legal procedures for the amalgamation are:
- The companies need to acquire the approval of the board of directors
- The approval is followed by a detailed plan
- The companies seeking the merger must file for the approval of the National Company Law Tribunal (NCLT)
- Once the board and the NCLT have approved it, the final draft is filed with the Registrar of the companies to become effective
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Frequently Asked Questions (FAQs)
What is the difference between amalgamation and merger?
The amalgamation process entails forming a single entity from two or more previously existing companies. Whereas a merger is when one company acquires another company and only the acquiring company exists
Why do companies choose to merge?
The key reasons for amalgamations are:
- Expansion of business to enter new market or offer new products
- To achieve cost efficiency
- Reduction in competition and market dominance
- Achieve financial stability
What is the accounting treatment of amalgamation?
The amalgamation in the nature of the merger:
- The assets, liabilities, and the shareholders come together to form the merging companies.
- All the business operations go on as before
- The shareholders of the new entity are the shareholders of the merging companies
The amalgamation in the nature of purchase:
- The company acquiring the other company continues to exist as a new comoany
- The shareholders of the acquired company receive compensation as shares or cash
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