WHAT IS A MERGER ?
A merger occurs when two or more companies combine and create a new company. The companies in a merger typically are in the same industry or do similar things and want to either grow or diversify their offerings. Companies choose to merge for fulfilling various purposes like expanding the customer base, reaching out to new markets, reducing headwinds such as competition, and new product launch.
All the assets and the liabilities of the company that is merged belong to the company in which it is merged. Similarly, the shareholders of the old company get ownership and the shares of the new entity.
WHAT IS AMALGAMATION ?
Amalgamation usually happens when a larger entity of the business having bigger operations in the market acquires smaller companies which much less revenue and operations. The combined corporations are then automatically liquidated.
Amalgamation of companies can help to increase cash resources, eliminate competition, and help in saving taxes.
Thus, through the process of amalgamation a completely new entity is formed to have combined assets and liabilities of both the companies.
DIFFERENCE BETWEEN MERGER AND AMALGAMATION
Following are the main points of difference between merger and amalgamation –
- LEGAL IDENTITY :- In case of merger, a new entity with completely new identity is formed whereas in case of amalgamation the acquiring company retains its identity while the acquired company’s identity is dissolved.
- TYPES :– A merger can be of 3 types i.e it can be either horizontal , vertical or conglomerate whereas Amalgamation can be of 2 types , namely, amalgamation in the nature of purchase or in the nature of merger.
- OF COMPANIES REQUIRED :- Amalgamation involves three companies – amalgamated and others amalgamating whereas merger involves minimum two companies – one is acquiring and other merged entity.
- OWNERS OF SHARES :– In case of amalgamation, shareholders of all the combining units become shareholders in the newly created enterprise but in case of merger shareholders of the absorbed company get the shares in the absorbing company.
- INITIATIVE BY :– Mergers are mostly driven by the absorbing company whereas amalgamation process is initiated by both the companies interested in the amalgamation.
Thus, to sum up, a merger is where two or more business entities combine to create a new entity or company while an amalgamation is where one business entity acquires one or more business entities.
Both can be a useful tool for corporate restructuring & a company can go for either of the two depending on the nature of their business, company structure, objective and macro business environment.
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