Back to: FINANCIAL ACCOUNTING SS2
Welcome to class!
In today’s class, we will be talking about company amalgamation. Enjoy the class!
Company Amalgamation
What is Company Amalgamation?
Amalgamation is the blending of two or more existing companies into one company. For example, if two existing companies such as Dangote Flour and Flour Mill Plc go into liquidation to form a new company, Dan Flour Mill, it will be a perfect example of amalgamation.
Amalgamation can also be defined as a combination of one or more companies into a new entity. An amalgamation is distinct from a merger because neither of the combining companies survives as a legal entity; a completely new entity is formed to house the combined assets and liabilities of both companies. This sense of the term amalgamation has generally fallen out of popular use, and the terms “merger” or “consolidation” are often used instead.
Reasons for Amalgamation
The main objective of amalgamation is to achieve synergetic benefits which arise when two companies can achieve more in combination than when they are individual entities. Asides this, however, there are other reasons which shall be found below-
- To reap economies of scale
- To eliminate competition
- To build up goodwill
- To reduce the degree of risk through diversification
- Managerial effectiveness.
Process of Amalgamation
The following procedure is followed in an amalgamation-
- The terms of amalgamation are finalized by the board of directors of the constituent companies.
- A scheme of amalgamation is prepared and submitted for approval to the respective High Court.
- Approval of the shareholders of the constituent companies is obtained.
- Approval of SEBI is obtained.
- A new company is formed (where necessary) and issues shares to the shareholders of the transferor company.
- The transferor company is liquidated and all assets and liabilities are taken over by the transferee company.
Evaluation
- What is amalgamation?
- What are some of the reasons for company amalgamation?
- What is the process for company amalgamation?
In our next class, we will be talking about Company Formation. We hope you enjoyed the class.
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