What is Amalgamation?
Amalgamation is the assortment of two or more entities or companies into one. It is done to create a larger and more profitable company or make it more competitive in its industry. The process of amalgamation involves the transfer of assets, liabilities, and ownership of one company to the other. It can also include merging two or more companies into a single entity.
When two companies are combined, they are brought together through a purchase or merger agreement. This agreement outlines the terms and conditions of the amalgamation, including the transfer of assets, liabilities, and ownership. It also outlines how the new entity will be managed and operated. Once the agreement is finalized and approved, the two companies are combined. This new entity is then referred to as an amalgamated company and is treated as a single entity for tax, legal, and corporate purposes.
The advantages of amalgamation include the following:
- Increased size and market share.
- Efficiency and cost savings.
- Flexibility.
- Access to resources.
- Improved financial stability.
The disadvantages of amalgamation include potential conflicts of interest, reduced autonomy, and reduced innovation.
Overall, amalgamation can benefit companies looking to increase their size and market share or become more competitive.
What is Demerger?
A demerger is when a company splits itself into two or more separate entities. It is the opposite of a merger when two companies join together. Demergers are done for tax, legal, or strategic reasons.
In a demerger, one company (the parent company) will separate its assets and liabilities into two or more companies. The parent company will transfer some or all of its assets and liabilities to the daughter companies. This process can also involve a share exchange, where shareholders in the parent company receive shares in the daughter companies.
The demerger process involves a lot of legal work, such as negotiating the terms of the demerger, filing paperwork with the relevant regulatory bodies, and issuing any new shares. It also requires the parent company to create a new corporate structure, which will involve changing the company’s name, creating new legal documents, and setting up new management structures.
The purpose of a demerger is to create two or more companies that can better focus on their strengths and weaknesses. It can benefit both the parent company and its shareholders, creating new opportunities for growth and increased profitability.
Difference Between Amalgamation and Demerger
- Amalgamation results in creating a new entity and can significantly impact taxation; demerger has little tax implication.
- Amalgamation is a costlier process, as it involves transferring shares and other associated costs; demerger is relatively less expensive.
- Amalgamation requires the approval of both companies involved, while demerger requires the permission of shareholders of only one company.
- Amalgamation involves a greater degree of risk, combining two or more companies; demerger involves less risk, as it involves splitting a single company.
- Amalgamation requires the approval of several regulatory authorities, while demerger requires only the support of the company’s board of directors.
Comparison Between Amalgamation and Demerger
| Parameters of Comparison | Amalgamation | Demerger |
| Reason | Amalgamation is done to strengthen the financial position. | The demerger is done to increase the company’s market share. |
| Process | Amalgamation involves combining two or more companies into one. | A demerger consists in splitting a company into two or more independent entities. |
| Impact | Amalgamation has a positive effect on the financial position of the company. | Demerger helps to unlock value but can hurt the financial position. |
| Complexity | Amalgamation is a complex process. | The demerger is more straightforward. |
| Time | Amalgamation is a time-consuming process. | The demerger is a relatively more straightforward and faster process. |