What Is Amalgamation Of Companies?
Amalgamation of companies means the merger of two or more companies in order to form a new company. In other words the process in which two or more companies having similar business go into liquidation and a new company comes to take over the existing business is called Amalgamation.
The company which is amalgamated into another company is called Transferor Company. Whereas the company into which the Transferor Company amalgamated is called Transferee company.
Exm- X Ltd & Y Ltd companies are merged together and form a new company named as XY Ltd is an Amalgamation. X & Y Ltd are Transferor Company where XY Ltd is Transferee company.
Objective Of Amalgamation Of Company
For the sake of clarification some of the most important objective behind amalgamation of companies are pointed below:
i. For a better control over the market.
ii. To properly utilise the service of professional experts.
ii. To increase the profit volume of business.
iv. It aims to eliminate the cut-throat competition among themselves.
v. To capable of increasing the market share and its area of operation.
vi. To increase the availability of funds for further investment in future.
vii. To enjoy the economy for large scale production.
Features Of Amalgamation Of Companies
i. The new company form in amalgamation is expected to be greater than to the transferor company.
ii. Two or more companies are required to amalgamate on the process of amalgamation.
iii. A new company must be formed to take over the business of the transferor company.
iv. All the existing companies are to be liquidated before amalgamation.
v. In Amalgamation one company is acquired by another, and shareholders of the transferor company do not have a proportionate share in the equity of the combined company.
vi. If the purchase consideration of amalgamation companies exceeds in net asset value (NAV), the excess amount is recorded as goodwill of the new company. If not recorded, it is recorded as capital reserves.
Types Of Amalgamation
For the sake of clarification Amalgamation of companies is broadly divided into two types, they are;
A. Amalgamation Is Nature Of Merger
B. Amalgamation Is Nature Of Purchase
Amalgamation Is Nature Of Merger
The amalgamation which is made with the consent of two or more companies to continue their business is known as Amalgamation is Nature Of Merger.
Under this all the companies are of equal importance in the new form of companies. The method used in Amalgamation is Nature Of Merger is known as Interest Pulling Method.
Amalgamation should be considered to be an amalgamation is nature of merger when it satisfy some important condition, the important conditions are pointed below:
I. All the profit & reserve now become the profit & reserve of Transferor or New Company.
ii. All assets & liabilities of transfer companies become the assets and liabilities of the Transferee company.
iii. A shareholder holding 90% or more face value of equity share of the Transferee company becomes the shareholder of the transferor company.
iv. No adjustment should be made to the book value of asset and liability of the transferor company.
v. The consideration of amalgamation should be received through equity of the transferee but for any financial share cash may be paid.
Method Of Amalgamation Is Nature Of Merger
For Amalgamation the nature of merger only one method is applicable and the method is Interest Pulling Method.
Under this method amalgamation does not require any adjustments and the reserve and surplus of the transferor company are incorporated.
Amalgamation Is Nature Of Purchase
Amalgamation is made by or purchasing another company is known as Amalgamation Is Nature Of Purchase. Under this normally one large company and the shareholder of Transferee company Seizes to be continued as the shareholder of the transferee company.
If most of the conditions of amalgamation in the nature of merger are not satisfied then it is known as Amalgamation is the nature of purchase.
Method Of Amalgamation Is Nature Of Purchase
For Amalgamation the nature of purchase is that only one method is applicable and the method is the Purchase Method.
Under this method amalgamation adjustment is required and the reserve and surplus of the transferor company are not incorporated.
FAQs
1. What Is an Amalgamation Reserve?
The amalgamation reserve is the amount of cash left over by the new companies after the amalgamation of companies is completed. If this reserve amount is negative form, then it will be booked or recorded as goodwill of the company.
2. What are the types of Amalgamation?
Amalgamation of companies is 2 types they are Nature Of Merger & Nature Of Purchase.
3. How many companies involved in Amalgamation?
There are two or more companies are involved in Amalgamation of company. Generally in this process small entity company merge with large entity company.