The combination of one or more companies into a new entity. An amalgamation is distinct from a merger because neither of the combining companies survives as a legal entity. Rather, a completely new entity is formed to house the combined assets and liabilities of both companies.
The terms merger and amalgamation have not been defined in the Companies Act, 1956 though this voluminous piece of legislation contains more than 50 definitions in Section 2 of the Act. For the purpose of this act the terms ‘Merger’ and ‘Amalgamation’ are synonymous. The statutory provisions relating to merger and amalgamation are contained in sections 390 to 396A.
According to Oxford Dictionary, the expression "Merger" or "Amalgamation" means "Combining of two commercial companies into one" merging of two or more business concerns into one" respectively. 'Merger' is a fusion between two or more enterprises, whereby the identity of one or more is lost and the result is a single enterprise whereas 'Amalgamation' signifies blending of two or more existing undertakings into one undertaking, the blended companies losing their identities and forming themselves into a separate legal identity. There may be amalgamation either by the transfer of two or more undertaking to a new company, or by the transfer of one or more undertaking to an existing company.
Amalgamation as defined in section 2 (1B) of the Income Tax Act, 1961 means the merger of one or more companies with another company or the merger of two or more companies to form one company in such a manner that the following conditions are satisfied :
A) All the property of the amalgamating company or companies immediately before the amalgamation becomes the property of the amalgamated company by virtue of the amalgamation.
B) All the liabilities of the amalgamating company or companies immediately before the amalgamation becomes the liabilities of the amalgamated company by virtue of the amalgamation
C) Shareholders holding at least three-fourths in value of the shares in the amalgamating company or companies (other than shares already held therein immediately before the amalgamated company or its nominee) becomes the shareholders of the amalgamated company by virtue of the amalgamation.
According to the mandatory Accounting Standard 14 (AS-14) issued by the Institute of Chartered Accountants of India (ICAI), ‘amalgamation’ means an amalgamation pursuant to the provisions of the Companies Act, 1956 or any other statute which may be applicable to companies.
Normally, there are two types of amalgamations. The first one is similar to a merger where all the assets and liabilities and shareholders of the amalgamating companies are combined together. The accounting treatment is done using the pooling of interests method. It involves laying down a standard accounting policy for all the companies and then adding their relevant accounting figures like capital reserve, machinery, etc. to arrive at revised figures.
The second type of amalgamation involves acquisition of one company by another company. In this, the shareholders of the acquired company may not have the same equity rights as earlier, or the business of the acquired company may be discontinued. This is like a purchase of a business. The accounting treatment is done using a purchase method. It involves recording assets and liabilities at their existing values or revaluating them on the basis of their fair values at the time of amalgamation.
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