Amalgamation | 2 Types of Amalgamation

              Today in this article lets understand about the Amalgamtion, Absorption and External Reconstruction and also the types of Amalgamation.

Amalgamation

          According to Halsbury’s Laws of England “Amalgamation is a blending of two or more existing undertaking into one undertaking, the shareholders of each blending company becoming substantially the shareholders in the company which is to carry on the blended undertakings. There may be amalgamation either by transfer of two or more undertakings to a new company or by the transfer of one or more undertakings to an existing company.”

          When two are more similar companies going to liquidation and form a new company is called amalgamation.

For instance A company  and B company go to liquidation and a new company called AB is formed.

Absorption :

           When a financial stronger company takeover one or more liquidating company or companies is called absorption

For instance A Ltd acquires the business of B Ltd

External Reconstruction:

          When a company goes to liquidation and the same company is formed in another name is called external reconstruction.

          As per AS 14 absorption and external reconstruction are called amalgamation only. 

Types of Amalgamation

Amalgamation can be classified into two types. They are

§  Amalgamation in the nature of Purchase

§  Amalgamation in the nature of Merger

Now let us understand in detail each type of amalgamation

§  Amalgamation in the Nature of Merger

·      All the assets and liabilities of the transferor company becomes the asset and liabilities of the transferee company  after amalgamation.

·        Shareholders holding not less than 90% of the face value of the equity shareholder  of the transferor company becomes the equity shareholders of transferee company after amalgamation.

·        The consideration for the amalgamation receivable by those equity shareholders of the transferor company who agree to become the equity shareholder of transferee company.

·        The business of transferor company is  to be carried on after the amalgamation by the transferee company.

·        No adjustments is to be  made to the book value of the asset and liabilities of the transferor company where they are incorporated in the financial statement of the transferee company.

§  Amalgamation in the Nature of Purchase:

It is an amalgamation which does not satisfy all the conditions specified for the amalgamation in the nature of merger. In this type the transferee company has to pay the agreed amount to the selling company at the time of amalgamation. It is called purchase consideration. Purchase Consideration usually takes place in following methods.

§  Net Asset Method

§  Net Payment Method

§  Lump Sum Method

§  Intrinsic Worth Method