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Business Amalgamation

During Amalgamation businesses owners should decide whether they want it to be long term or just short term and they should also ensure that they follow the laid down legal requirements. This ensures the process is completed smoothly.

Amalgamation is a process by which two or more corporations governed by the Canada Business Corporations Act, the “amalgamating corporations,” merge and carry on as one corporation, the “amalgamated corporation”. The effective date of an amalgamation is the date on which Corporations Canada receives your application for amalgamation or any later date requested.

Long-form amalgamation

A long-form amalgamation requires each amalgamating corporation to sign an amalgamation agreement and submit it for approval at a meeting of shareholders. The amalgamation agreement sets out the terms and means of carrying out the amalgamation and must include:

  • the provisions required in the articles of amalgamation
  • the name and address of each proposed director of the amalgamated corporation
  • an explanation of how shares of each amalgamating corporation will be converted into shares or other securities of the amalgamated corporation
  • a statement, if any shares of an amalgamating corporation are not to be converted into securities of the amalgamated corporation, of the amount of money or securities that the holders of such shares are to receive from any body corporate in addition to or instead of securities of the amalgamated corporation
  • a description of the manner of payment of money instead of the issue of fractional shares of the amalgamated corporation or of any other body corporate the securities of which are to be received in the amalgamation
  • the proposed by-laws, indicating whether they are new or consist of the by-laws of one of the amalgamating corporations
  • details of any arrangements necessary to complete the amalgamation and to provide for the subsequent management and operation of the amalgamated corporation.

The articles of amalgamation submitted to Corporations Canada must include the provisions agreed on in the amalgamation agreement.

Short-form amalgamation

A short-form amalgamation is approved by a resolution of the directors and does not require approval of the shareholders. It is often faster than long-form amalgamation. There are two types of short-form amalgamation.

  • A vertical short-form amalgamation involves a holding corporation and one or more wholly-owned subsidiaries. In this case, the articles of amalgamation must be the same as the articles of the amalgamating holding corporation, except for the name, which can be different.
  • A horizontal short-form amalgamation involves two or more wholly-owned subsidiaries of the same holding corporation. The shares of all but one of the subsidiaries will be cancelled as part of the amalgamation with no repayment of capital in respect of those shares. The articles of amalgamation must be the same as the articles of the amalgamating subsidiary corporation whose shares are not cancelled, except for the name, which can be different.

The statutory declaration must be signed by a director or officer of each amalgamating corporation.

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This process of joining two businesses together help them cut down on production cost, and also makes the new business have a larger market share. This means the business becomes more competitive and thus more profits.

  1. Operating economics

Operating economics means expenses associated with business and its allied activities. These expenses are required to carry on day-to-day activities of the business. These generally include fixed cost and variable cost.

When companies amalgamate, their business operation expands. Such expansion helps them to use and manage the economies of large-scale production and distribution.

Under operating economies:

  1. Amalgamated companies optimally utilize their production and distribution capacity.
  2. They also manage to reduce operating cost, management cost, personnel cost, etc.

Hence, based on above discussion, we can say that, amalgamation results in operating economics.

  1. Diversification

Diversification means to have presence (establishment) in different business ventures, which are not related to each other.An amalgamated company diversifies into new business ventures because of following main reasons:

  1. It has enough strength to handle the risks of diversification.
  2. It also has ample financial resources at its stake to diversify.

  1. Financial economics

Financial economics means expenses associated with the acquisition of funds required to run the business. This covers long-term and short-term monetary obligations.

Under financial economies:

  1. An amalgamated company can get tax benefits, especially, when a loss-making company amalgamates with a profit-making company.
  2. It can borrow more funds from the market at lower rate of interest.

Thus, in short, amalgamation helps in achieving financial economics.

  1. Growth

Generally, business operations of an amalgamated company grow faster than individual companies.

This growth is possible due to the following main reasons:

  1. An amalgamated company can face competition more effectively.
  2. It can share past experiences as and when required.
  3. It can also take maximum advantage of joint expansion plans.
  1. Managerial effectiveness

Managerial effectiveness is a manager’s skill to attain the desired outcome in the business operations.

An amalgamated company improves its managerial effectiveness by:

  1. Replacing ineffective management team with an effective and efficient management team.
  2. Mandating managers to share their past work-experiences in the best interest of the company as and when required.
  1. Helps to face competition

Amalgamation inculcates business strategies that help to face market competition with ease and confidence.

Due to economies of large-scale production and distribution, the amalgamated companies are able to:

  1. Produce better and affordable quality goods and services.
  2. Sell such goods and services at competitive prices to sustain in the market.

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