Amalgamation is a business process where two or more businesses merge forming one new business. It is a popular company re-organizing technique where growth, lessening rivalry, augmenting market, or enhancing operational efficiency are intended. Simply, amalgamation refers to the merging of businesses to act as a single organization.
In amalgamation, the liabilities and assets of the merging firms are passed on to a new company that is started. The original firms tend to be dissolved and the shareholders are allotted shares in the new one. This is slightly different in the case of merger where one company can absorb another and it proceeds to exist.
Types of Amalgamation
Amalgamation is usually of two types:
Merger Nature Amalgamation In this form there is equal merging of the two enterprises. Via transfer of all the assets, liabilities as well as reserves to a new company and shareholders retain a similar ownership arrangement.
Amalgamation in the Nature of Purchase -In this case, a company buys another. The assets and liabilities are transferred to the purchasing company and the acquired company might not be able to retain its identity.
Objectives of Amalgamation
Amalgamation is preferred in companies due to a variety of reasons:
Expanding business operations.
Reduction of competition
Economies of scale
Tax benefits
Availability of new technology/knowledge.
Better financial position.
Advantages:
Increased market power
Cost efficiency
Improved use of resources.
Enhanced profitability
Disadvantages:
Complex legal procedures
Intercultural conflicts within companies.
Risk of integration failure
Possible job redundancies
Conclusion
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