What is Amalgamation? Definition, Meaning and Example
Definition of Amalgamation
In general, the definition of amalgamation can be stated as follows.
"Amalgamation is a union of two or more companies, made with an intention to form a new company."
In terms of finance, the definition of amalgamation can be given as under.
"Amalgamation is an agreement (deal) between two or more companies to consolidate (strengthen) their business activities by establishing a new company having a separate legal existence."
Image credits © Brad Ross.
Meaning of Amalgamation
Before we proceed to know, What is Amalgamation? First let's understand the meaning of two terms viz., 'amalgamating companies' and 'amalgamated company'. The meaning of these terms is as follows:
- Amalgamating companies are those two or more companies which willingly unite (combine) to carry on their business activities jointly.
- Amalgamated company is a newly formed union (alliance) of two or more amalgamating companies. It has a separate legal existence with a new unique name.
Now let's discuss the meaning of amalgamation with some examples.
To amalgamate means to unite or combine or blend. It is an act or process in which two or more things fuse together to form a new potent thing.
Amalgamation is an emerging trend of today's business world. It results in the formation of a new, strong, stable and large company. It also results in the growth and expansion of this newly formed company.
During amalgamation, two or more companies willingly come together to cooperate with each other and diversify (expand) their business activities.
After amalgamation, two or more companies dissolve (disintegrate) and lose their individual legal status (existence), hence they no longer exist anymore. However, they again re-establish themselves, but now jointly, by forming a new company having a unique name.
Thus, amalgamation results in the formation of a new (separate) company which has a unique name, logo, identity and existence.
The management of amalgamated company is led (directed) by members of two or more companies getting amalgamated.
Example of Amalgamation
Consider the example of amalgamation shown in the following diagram.
In the above example, Company 'A' and Company 'B' are operating (existing) in the market. Company 'A' is one amalgamating company while Company 'B' is another amalgamating company. Company 'A' and Company 'B' are getting amalgamated to form a new (separate) Company named 'AB'.
In this example of amalgamation, Company 'A' and Company 'B' will surrender all their equity shares (ownership shares) to the newly formed Amalgamated Company 'AB'. The assets and liabilities of Amalgamating Companies 'A' and 'B' will be transferred to Company 'AB'. The shareholders of the Company 'A' and Company 'B' will be given the shares of Company 'AB'. The amalgamating companies 'A' and 'B' will lose their individual existence (identity) and continue to operate jointly under the name of Company 'AB'.
Two good examples of amalgamations are as follows:
- Maruti Motors operating in India and Suzuki based in Japan amalgamated to form a new company called Maruti Suzuki (India) Limited.
- Tata Sons operating in India and AIA Group based in Hong Kong amalgamated to form a new company called TATA AIG Life Insurance.
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January 1, 2013 at 4:37 AM
Is Amalgamation same as a Joint venture?
January 1, 2013 at 4:46 AM
Amalgamation and Joint venture are not same.
1. Amalgamation always results in formation of a new company whereas Joint venture does not result in formation of a new-company.
2. Amalgamation is formed with an intention of continuing business operations over an indefinite period. In contrary, joint venture is formed with an intention of continuing business operations over a definite period.
August 19, 2013 at 11:55 AM
Amalgamation is the act of bringing two or more companies together, to form a company in order to strengthen their business.
September 30, 2013 at 5:14 PM
If two companies come together to form an amalgamation, which company will be the one with the controlling power?
October 1, 2013 at 4:48 AM
Amalgamation is an agreement between two or more companies to consolidate their business activities by establishing a new company which will be having a separate legal existence.
So there is nothing like having a controlling power of any one company.
February 13, 2014 at 8:34 AM
can u explain merger vs amalgamation?
February 13, 2014 at 9:53 PM
Dear Pavan,
Merger is a union of two or more business entities. It is a method in which the identity of one or more business entities is lost.
Amalgamation is a unification (coming together) of two or more business entities. In this method, both business entities (e.g. companies) lose their identities, and a new separate entity (e.g. a new company) is formed.
February 15, 2014 at 5:43 PM
What is the difference between AMALGAMATION, ABSORBTION AND RECONSTRUCTION?
February 16, 2014 at 5:31 AM
In Amalgamation, two or more companies are liquidated (i.e. winded up). In the process of Amalgamation, a new company is formed.
In Absorption, one or more companies are liquidated. In the process of Absorption, no new company is formed and an existing company takeover (absorbs) other liquidated companies.
In Reconstruction, there is a transfer of a company's business to a new company. The existing company may or may not be liquidated. The shareholders of an existing-company will get shares of equivalent value (amount) in the new company. This requires an approval of the court.
February 23, 2014 at 5:59 AM
What is the basic difference between the amalgamation, merger and purchase consideration rply fast
February 23, 2014 at 6:41 PM
In Amalgamation, two or more companies are liquidated. Here, a new company is formed.
In Merger, one or more companies are liquidated. Here, no new company is formed.
Purchase consideration is the total money paid to complete (carry out) the amalgamation and merger process.
May 22, 2014 at 11:01 PM
If there is amalgamation how the E shares are adjusted in Stock exchanges
May 26, 2014 at 12:29 AM
The owners of E Share are given intimation or information of the amalgamation of the company, by the management of the company.
They (shareholders) will get new shares of the amalgamated company in lieu of their previous shares.
All the information is given by management of the company to the concerned stock exchange.
Thereafter, the shares of the old company cease to exist, and shares of the newly amalgamated company are traded (listed) with the concerned stock exchanges.
Such, E-Shares are adjusted after the close of investor trading market.
April 7, 2015 at 2:58 AM
What is rights and duties of companies after amalgamation?
April 8, 2015 at 1:07 AM
Dear Gori,
There is no change in rights and duties of the company during and after amalgamation. The company have same rights and duties as it were previous to amalgamation.