what do you mean by amalgamation

A new company is formed to take over the businesses of companies going into liquidation. Working capital management is a business plan meant to guarantee that a firm functions effectively by monitoring and putting its current assets and liabilities to their most effective use. Amalgamation is one of the techniques that can assist organisations in avoiding competition and expanding their market offerings by combining their assets.

In an acquisition, by contrast, one company purchases another (usually by buying up enough of its stock) and takes on its assets and liabilities, with no new company being created as a result. When an existing company purchases the business of another company carrying on similar business, it is called absorption i.e. one company absorbs another company. Absorption takes place when an existing company purchases the business of one or more companies. Amalgamation differs from a merger in that none of the two companies involved is a legal entity.

Although all three of these words refer to changes due to contact between different cultures, there are notable differences between them. Acculturation is often tied to political conquest or expansion, and is applied to the process of change in beliefs or traditional practices that occurs when the cultural system of one group displaces that of another. Assimilation refers to the process through which individuals and groups of differing heritages acquire the basic habits, attitudes, and mode of life of an embracing culture. Amalgamation refers to a blending of cultures, rather than one group eliminating another (acculturation) or one group mixing itself into another (assimilation). Amalgamations are one of several ways that existing companies can join forces, in this case creating an entirely new company. While the term is rarely heard in the U.S. today, the practice continues both there and elsewhere around the world.

Amalgamation vs. Acquisition

The amalgamation of two or more companies is possible only if the companies are engaged in the same line of business and have little bit similar production operations. Companies opting for amalgamation intend to expand services provided by them and diversify their business operations. Curate’s egg Any amalgam of good and bad features; any combination of assets and liabilities, strengths and weaknesses, pros and cons, etc. This British term dates from an 1895 Punch cartoon in which a deferential, diplomatic curate, unwilling to acknowledge before his bishop that he had been served a bad egg, insisted that “Parts of it are excellent!

  • The process in which one company acquires the business of another company is known as Absorption.
  • A Ltd. and B Ltd. joined to form AB Ltd., it is known as an amalgamation, whereas A Ltd takes over the business of B Ltd., so B Ltd. loses its existence, and only A Ltd. exists, it is known as absorption.
  • When two or more corporations unite to establish a new company, this is known as an amalgamation.
  • In this process, the weaker company looses its identity by merging itself with the stronger company.

The term amalgamation has become obsolete and not commonly used in developing countries like the United States of America. The terms like merger and consolidation have taken the place of amalgamation. But amalgamation is quite frequently used in developing countries like India for combining companies. The dictionary meaning of amalgamation is combining two or more things to form a new thing. The definition of amalgamation remains the same in business terminology. In business terminology, the term “amalgamation” is used for the amalgam of two or more companies.

Key Differences Between Amalgamation and Absorption

In the first type of amalgamation, the assets, liabilities, and shareholders of two companies are pooled together, however, one company is the transferee, while the other is the transferor. Amalgamation is a consolidation of two entities to form a single entity. When two small businesses or companies are combined to form one, amalgamation has occurred. This is a little different from merger and acquisition in which an entity is buried into a bigger entity in the case of acquisition or two entities coming together but retaining the name of a stringer entity. Through this accounting method, the assets, liabilities and reserves of the transfer or company are recorded by the transferee company at their existing carrying amounts.

First, a plan for amalgamation must be submitted to the board of directors of each company. Upgrading to a paid membership gives you access to our extensive collection of plug-and-play Templates designed to power your performance—as well as CFI’s full course catalog and accredited Certification Programs. Access and download collection of free Templates to help power your productivity and performance.

what do you mean by amalgamation

Here, we have compiled all the differences between amalgamation and absorption of companies, which you were looking for. Purchase Consideration refers to the price paid by the vendee company to the vendor company, is called purchase consideration. It is the total of shares, debentures, etc. issued and the payment made in cash or kind. Direct payments made by the transferee company to the creditors or debenture holders will not be taken into account while calculating the purchase consideration.

Meaning of amalgamation in English

If the purchase considerations are higher than the Net Asset Value (NAV), then the increased value is referred to as goodwill. On the other hand, if purchase considerations are lower than the Net Asset Value, then the decreased amount is referred to as Capital Reserves. Amalgamation is the process of combining or uniting multiple entities into one form. In general, the objective of an amalgamation is to establish a unique entity capable of more effectively competing in the marketplace, while also benefiting from greater economies of scale. In that respect it is not all that different from an acquisition and similar strategies to aid corporate growth. In April 2022, the telecom giant AT&T and the television entertainment company Discovery, Inc. announced that they had finalized a deal to combine AT&T’s WarnerMedia business unit with Discovery.

what do you mean by amalgamation

Companies may also join forces to diversify their activities or expand their service offerings. The company amalgamated into another company is referred to as the transferor company, and the firm into which the transferor company is merged is referred to as the transfer company. Amalgamation is the legal process, in which two or more companies combine themselves to form a new company. On the other hand, absorption is when two or more companies are combined into an existing company.

What is the legal process of amalgamation?

Amalgamation often results in the creation of a larger and stronger legal entity. Expansion of business and the ability to reach wider customers is another attribute of amalgamation. The first type of amalgamation is a kind of amalgamation where all the companies involved in the amalgamation process combine their assets, liabilities, and shareholders’ interests. All the assets and liabilities of the transferor company became the assets and liabilities of the transferee company. There is a genuine pooling not merely of assets and liabilities of the amalgamating companies but also of the shareholder interest and surplus of the business of two companies. All the assets and liabilities including reserves and surplus of the transferor company, after amalgamation, become the assets and liabilities of the transferee company.

Amalgamation can also refer to the combining of other types of organizations into a single one, such as nonprofit groups and entities in the public sector, including government agencies and municipalities. In accounting, the amalgamation reserve is the amount of cash left over at the new entity after the amalgamation is completed. Amalgamation is a way to acquire cash resources, reach a broader customer base, eliminate competition, save on taxes, and/or improve economies of scale. Pooling of Interest Method is used for accounting in the books of transferee company.

A whole new entity is developed due to the merger, with the assets and liabilities of both companies amalgamated. When amalgamation is affected, some or all the assets and liabilities of the vendor companies, are transferred to the vendee company. Similarly, the shareholders of the old entity turn out as the shareholders of the amalgamated entity. There are two major types of amalgamation, one type of like a merger while the other type can be likened to a purchase.

Sometimes companies opt for amalgamation when they want to enter a new market and want to create a new product. The following are the reasons for which companies choose for amalgamation. Amalgamation, as its name suggests, is nothing but two companies becoming one. On the other hand, Absorption is the process in which the one dominant company takes control over the weaker company. These are two business strategies adopted by the companies to expand itself and take a competitive position in the market. But, here one should know that Amalgamation can occur in two ways i.e. in the form of merger or the form of absorption.

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In this process, the weaker company looses its identity by merging itself with the stronger company. The two companies differ in their size, structure, financial condition and operations. The companies either mutually take the decision of absorption, or it can be a hostile takeover.

When the prerequisites for an amalgamation in a merger are not met, this type of merger takes place. Another buys one company via this method, and the acquired company’s shareholders typically do not retain a proportionate share of the merged firm’s ownership. The acquired company’s business is generally not meant to be maintained. If the acquisition price is greater than the net asset value, the difference is recorded as goodwill, whereas if it is less, the difference is recorded under capital reserves.

  • Let us take a closer look to comprehend better what this amalgamation of a company means.
  • Curate’s egg Any amalgam of good and bad features; any combination of assets and liabilities, strengths and weaknesses, pros and cons, etc.
  • In this context, the financial statements of both entities are aggregated to form a consolidated financial statement.
  • The definition of amalgamation remains the same in business terminology.
  • In corporate finance, an amalgamation is the combination of two or more companies into a larger single company.

It is an effective method of corporate restructuring for bringing about positive change and making the business climate more competitive. An amalgamation is, in fact, a specific subset within a broader group of “business combinations.” There are three main types of business combinations, which are outlined below in more detail. It’s important to understand the subtle differences when talking about mergers, acquisitions, and amalgamations.

Canada defines amalgamation as “when two or more corporations, known as predecessor corporations, combine their businesses to form a new successor corporation.” In this process, the companies which go into liquidation is known as Amalgamating Companies or Vendor Companies whereas the company which is newly formed is referred to as the Amalgamated Company or Vendee Company. Account standard – 14 for amalgamation issued what do you mean by amalgamation by the institute of Chartered Accountants of India does not recognise distinction between amalgamation and absorption. Even from the academic point of view, it is not necessary to distinguish between amalgamation and absorption. One new company – AB Company – is formed to take over the businesses of A Company and B Company. Here, A Company and B Company are liquidated and a new Company, that is, AB Company is formed.