Meaning Of Amalgamation
When two or more companies carrying on similar business go into liquidation and a new company is formed to take over their business, it is called amalgamation. In other words, amalgamation refers to the formation of a new company by taking over the business of two or more existing companies doing similar type of business. In amalgamation, two or more companies are liquidated and a new company is formed to take over the business of liquidating companies. The companies which go into liquidation are called vendor or amalgamating companies where as the new company which is formed to take over the business of liquidating companies is called purchasing or amalgamated or transferee company. The main aim of amalgamation is to minimize the possibility of cut-throat competition and to secure the advantages of large scale production.
Features Of Amalgamation
The main features or characteristics of amalgamation can be highlighted as follows:
1. At Least Two Companies
In amalgamation, two or more existing companies are liquidated.
2. Formation Of New Company
A new company is formed to take over the business of liquidating companies.
3. Similar Nature
The nature of business of existing companies is similar.
4. Vendor And Purchasing Company
Liquidating companies are called vendor companies and the new company is called purchasing company.
5. Issue Of Share
Generally, purchase consideration is discharged by the issue of equity shares of purchasing company.