AMALGAMATION (The Companies Act - 2013)

 

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Amalgamation (The Companies Act - 2013)
 
- Meaning
- Legal procedure
- Types
- Purchase consideration
 
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Amalgamation: 
 
the term amalgamation is used when two or more existing companies go into liquidation and new company is formed to taken over their business.
 
According to The Companies Act – 2013, amalgamation includes:
 
    1. Two or more companies join to form a new company, and /or
    2. Absorption or blending of one by the other company
 
Thus, in the legal meaning, amalgamation includes absorption also.
 
A new company may not be formed in amalgamation 
 
  • Absorption: business of one or more existing company is taken over by another existing company.
Legally there is no difference between amalgamation and absorption.

Transferor and Transferee company (Vendor Company and purchasing company)
 
 
Legal procedure of amalgamation (The Companies act, 2013): 
 
  • Board of director’s approval
  • Tribunal’s approval
  • Shareholder’s approval
  • SEBI’s approval
  • Formation of a new company (not in case of absorption)
  • Transfer of asset and liabilities
 
 
Types of amalgamation AS 14:
 
1. Amalgamation in the nature of merger (Pooling of interest method)

  • Transfer of asset and liability
  • Same 90% equity share holders
  • Purchase consideration in equity shares
  • Same business
  • Carry forward of asset, liabilities and retained earnings at book values.
 
2. Amalgamation in the nature of purchase (Purchase)
 
Purchase consideration: 
The price paid by the transferee company to the transferor company for taking over the business.
(shares, other securities, cash or other assets )
 
    1. Lump – sum method : consideration is directly give
 
    2. Net asset(or worth) method 

3. Net payment method:
 
Add the various payments in the form of shares, securities, cash etc. made by the transferee company to the shareholders.
 
4. Share exchange method (intrinsic value method):
 
Shareholders in the transferor companies receives consideration in the form of equity shares in the transferee company on the basis of intrinsic value of shares 
 
 
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