Types of corporate restructuring

Amalgamation aids in increasing the combined company’s market share.Market share can be increased by combining the sales of the amalgamated companies as well as increasing the amalgamated company’s market presence . When two companies merge, the assets and liabilities of the target company are combined with the assets and liabilities of the surviving company. The shareholders of both companies are combined with the shareholders of the new company. An amalgamation implies the creation of a new company by a complete consolidation of two or more combining units. Under amalgamation none of the existing companies retains its entity.

is the result of combination of two or more companies

When assets and liabilities are restated based on their fair values, the determination of fair values may be influenced by the transferee company’s intentions. If the transferor and transferee companies have conflicting accounting policies at the time of the amalgamation, a uniform set of accounting policies is adopted following the amalgamation. When two companies https://1investing.in/ merge, the surviving company absorbs the merged company’s culture and identity. In this case, the transferor business of the company is intended to continue after the merger. Other requirements must be met, such as the shareholders of the vendor company owning at least 90% of the face value of the equity shares becoming shareholders of the vendee company.

Following the Amalgamation process, ABC Corp and XYZ Corp will cease to exist, resulting in the formation of a new entity, JKL Corporation. This method is considered when the conditions for amalgamation in the nature of the merger are not met. If the purchase consideration exceeds the net asset value, the excess is recorded as goodwill; otherwise, it is recorded as capital reserves. AcquisitionIt is when one company purchases most or all of another company’s shares to gain control of that company.

The Sick Industrial Companies Act has been subsumed in the company law and the principles therein, therefore, are eminently capable of being modified and applied in the new company law to be made. Appropriate remedies for misstatement and the ability to revoke such an order with punishment for any misstatement would be an adequate safeguard for false misstatement. The unsecured creditors are subsequent in the queue and without the consent of the secured creditors and their debt restructuring, they would have no hope to receive their dues. The Reserve Bank of India has specific tools for fast track debt restructuring known as the CDR Mechanism . It is often seen that sometimes even though 75% of the secured creditors consent to the debt restructuring and make significant sacrifices, minority secured creditors or unsecured creditors put a spoke through the wheel. As a result, such schemes that would otherwise enable the return of the corporate to viable operation, get delayed or scuttled.

This type of synergy tries to reduce administrative and overhead costs for the combined company more than the two distinct individual enterprises could. Because of the higher cash flows and ease of doing business that result from this merger, a company’s existing resources that are not being used to full capacity due to high operating costs can now be effectively utilised. Before examining the outcomes of mergers, it is vital to consider the motivations and justifications for the action. Several explanations have been proposed to explain this occurrence. The most widely held belief is that mergers and acquisitions are the quickest way to grow. It is undeniable that growth is essential for a company’s survival.

The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. An amalgamation is, in fact, a subset of a larger group of “business combinations.” There are three main types of business combinations, which are discussed in greater detail below. When discussing mergers, acquisitions, and amalgamations, it is critical to understand the subtle differences.

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Both companies operate in different markets and cater to different processes. With this combination, the manufacturing company will not have to set up separate units for retail. This takeover benefits both companies as a retail chain company specialising in its work. Combining two or more companies also brings together the best management personnel. Under Business combinations transactions with assets and liabilities, employees and management are also taken over. Few mergers took place, especially to bring experts and experienced managers.

Now-a-days, public companies opt route of reverse merger for merging with private companies to avoid lengthy procedure of merger. Is the process where two or more companies dissolve their identity to form a new entity. For example, merger of Brooke Bond and Lipton has formed a new entity called Brooke Bond Lipton India Limited.

is the result of combination of two or more companies

When two or more companies are added together to form a new entity for better synergy, we terms it as merger or amalgamation. But there are many types of corporate restructuring which people combine under the umbrella of words mergers and amalgamation. Mergers and acquisitions (M&A) is a broad phrase that refers to one or more types of financial transactions that result in the consolidation of firms or assets. A merger, sometimes known as a merger of equals, is a transaction in which two companies of similar size agree to legally unite to form a single, new entity for restructuring, company expansion, product development, or entry into new markets. Two companies join forces to form a new entity during the amalgamation process.

Financial Synergy

Grasim Ind. was benefited through economies of scale, increased capacity, overall competitiveness, multifunctional synergies and combined resource pool. The 1956 Act allowed cross-border mergers only when the Company transferring was a foreign company. However, the 2013 Act allows, in-principle mergers between an Indian and a foreign entity, provided it is located in a jurisdiction notified by the central government in periodic consultation with RBI. Such mergers require RBI approval and the Scheme can allow for payment in cash or depository receipts or both. The payment in cash or depository receipts allows those shareholders to exit, who do not want to be part of the of the merged entity. However, The Income Tax Act only grants tax exemptions on mergers if the receiving Company is an Indian company and does not recognize a foreign company, as the receiving company as described under the 2013 Act.

Complete consolidation is that form of business combination under which there is a complete fusion of the combining units and the separate entities of these units are surrendered in favour of the consolidated unit. A community of interest may be defined as form of business combination in which, without any central administration, the business policy of several companies is controlled, by a group of common shareholders or directors. Under the pool form of business combination, the members of a pooling agreement join together to regulate the demand or supply of a product without surrendering their separate entities, in order to control price. This type of combination or integration is formed when the units which combine together are engaged in the manufacture of different kinds of products but at the same time they are allied also.

It provides access to additional knowledge and resources that are held by the other party. The basic idea is to pool resources and facilitate innovative ideas and techniques with the common objective of sharing benefits. Liberalization, Privatization and Globalization of Indian economy led to relaxation of licensing, inflow of foreign investments, boost to private section, Govt. Due to these changes, traditional businesses became dynamic, rise in cut-throat competition etc. Improve corporate performance to achieve competitive advantage by adopting the radical changes brought out by information technology.

Existing Section 396 empowers Central Government to order amalgamation of two or more companies in public interest. It is felt that amalgamation should be allowed only through a process overseen by the Courts/Tribunals. Therefore, instead of existing provisions of Section 396, provision should be made to empower Central Government to approach the Court/Tribunal for approval for amalgamation of two or more companies.

is the result of combination of two or more companies

Economies of scale through vertical, horizontal integration etc. Due to these changes, traditional businesses became dynamic, Govt. Protection to private sector reduced, entry of multinationals in Indian markets etc. Hence, there was considerable rise in number of suppliers and cut-throat competition.

Key Elements and Terms of Business Combinations

Joint Venture A joint venture is an agreement between two or more companies to create a business where each of the companies contributes and participates in equal parts. The following are the key changes introduced in the 2013 Act and comparisons between the 1956 and 2013 Acts regarding “mergers”. In the 2013 Act, also the word “mergers” continues to be used interchangeably with “amalgamations”. However, the provisions relating to mergers covered in Sections 230 to 240 have been notified and have been implemented only since December 15, 2016. Passing of the board resolution approving the combination (in the case of a merger/amalgamation). Mergers or amalgamations, where the enterprise remaining, or the new enterprise that is created, or the group to which the enterprise will belong after the merger/amalgamation, meets the specified assets/turnover thresholds.

Amalgamation is a merger process in which two or more businesses merge to form a completely new entity/company. Amalgamation is a suitable arrangement in which two or more companies operate in the same industry; as a result, Amalgamation aids in cost reduction through operational synergy. Further, in such cases, the shell of such company should be allowed to be dissolved without winding up with court intervention. The present Act does not permit this form of merger in view of the specific definition of company under section 390 of the Companies Act. The Committee noted that apart from amendments to the Companies Act, suitable changes may be necessary in the Income Tax Act, Foreign Exchange Management Act and provisions relating to IDR to enable merger of an Indian Company with foreign entity.

  • The companies would then apply to the relevant High Court seeking an order to convene shareholders’ and creditors’ meeting.
  • _____________ is the combining of two or more companies into one organization.
  • Joint Venture A joint venture is an agreement between two or more companies to create a business where each of the companies contributes and participates in equal parts.
  • The corporate form of business organization is a facilitating force leading to emergence of business combinations.
  • Expansion is possible when a merged company can deal with competition more effectively.

Analysts expect their proposed merger to offer a competitive advantage over other multiplex operators, and drive bargaining power in terms of newer technologies, rentals and marketing spending. The deal is also expected to boost free cash flow, ensure stranglehold over real estate and bring in cost synergies. Merger is defined as combination of two or more companies into a single company where one survives and the others lose their corporate existence. The survivor acquires all the assets as well as liabilities of the merged company or companies. Generally, the surviving company is the buyer, which retains its identity, and the extinguished company is the seller.

The consolidated financial statements are prepared after business combinations. Along with its statement, it prepares to combine the financial statement of the acquiree. Anything related to the period before the acquisition will not form part of the consolidated financial statements. Instead, a completely new entity is formed to house both companies’ combined assets and liabilities. Amalgamation occurs when two or more firms join forces to form a new firm in order to survive in a new business environment. Both firms will be eliminated from the business, but they will retain control of the new firm.

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The 2013 Act captures SEBI guidelines for listing shares of unlisted companies and for merger of listed companies and merger of listed companies with unlisted companies. Financial synergies are improvements in a company’s financial activities and conditions that follow from a transaction. This is the result of combination of two or more companies often involves an improved balance sheet, a cheaper cost of capital, tax benefits, and better access to financing for the combined firm. The last of these, greater access to finance, is typically difficult to quantify, but the logic behind the argument is commonly regarded to be sound.

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A merger is a process of combining two or more companies/entities to form either a new company or an existing company that absorbs the other target companies. It is, in essence, the process of combining multiple businesses into a single business entity. In contrast to a traditional merger, neither of the two companies involved survives as a separate entity. Amalgamation can help businesses increase their cash resources, eliminate competition, and save money on taxes. However, if too much competition is eliminated, the workforce is reduced, and the new entity’s debt load is increased, it can result in a monopoly. A new firm or company is formed with the help of both an organization and a company.