Amalgamation vs. Absorption

Amalgamation vs. Absorption

Both amalgamation and absorption relate to the merger of two or more companies.

Amalgamation occurs, when two or more companies decide to unite to carry on their business together. In other words, it is a merger of one or more companies with another in such a way that all assets and liabilities of the amalgamating companies(the ones which are designed to shut down) become assets and liabilities of the amalgamated company (the one which is not being designated to close down).

In regards to ownership, shareholders of not less than the certain value level of the shares (usually nine-tenths in value) in the amalgamating company or companies become shareholders of the amalgamated company.

Usually after amalgamation, the amalgamated company has a new name and a separate legal existence which has assets and liabilities of the two companies.

Amalgamation of companies can be done in the form of absorption or consolidation.

Absorption is a form of merger where there is a combination of two or more companies into an 'existing company'. In the case of absorption, only one company 'survive' and all other lose their identity.

Usually company which acquiring the other companies (buyer) survives, while an acquired company (a seller), ceased to exist. Acquired company transfers its assets, liabilities and shares to the acquiring company. Thus the company that absorbs acquires all the rights and obligations of the company that is absorbed.

So, in summary:

Both amalgamation and absorption relate to a merger of two or more companies. Amalgamation can take various forms, among others, also absorption. The result of amalgamation is often new legal entity with assets and liabilities of acquired companies. The result of the absorption is the "old" legal entity, who did not change legal name, but solely increased the assets and liabilities by acquiring another company.

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