AMALGAMATION | ACCOUNTANCY &AUDITING|L-15|

What Is an Amalgamation?

An amalgamation is the combination of two or more companies into an entirely new entity. Amalgamations are distinct from acquisitions in that none of the companies involved in the transaction survives as a legal entity. Instead, a completely new entity, with the combined assets and liabilities of the former companies, is born.

The term amalgamation has generally fallen out of popular use in the United States, being replaced with terms like merger or consolidation, with which it can be synonymous. But it is still commonly used in certain countries, such as India.

Amalgamation combines two or more companies into a new entity by merging their assets and liabilities.

This differs from an acquisition or takeover in that none of the companies involved survives as an entity.

Amalgamation can help increase cash resources, reduce competition, and save companies on taxes, among other potential benefits.

But it can also lead to a monopoly if too much competition is eliminated, raise the new entity’s debt load to a dangerous level, and cost some employees their jobs.

How Amalgamations Work

Amalgamations typically happen between two (or more) companies that are engaged in the same line of business or that share some similarity in their operations. Usually, the process involves a larger entity, called a “transferee” company, absorbing one or more smaller “transferor” companies before the creation of the new entity.

The terms of an amalgamation are finalized by the board of directors of each company involved. The plan is prepared and submitted to regulators for approval. In India, for example, that authority resides in the High Court and Securities and Exchange Board of India (SEBI).

Indian tax law defines “amalgamation” somewhat broadly as “the merger of one or more companies with another company or the merger of two or more companies to form one company.” It refers to the merging companies as “the amalgamating company or companies,” while the company they merge with or which is newly formed as a result of the merger is “the amalgamated company.”