03 August 2011
A merger is a combination of two or more businesses into one business. Laws in India use the term 'amalgamation' for merger. The Income Tax Act,1961 [Section 2(1A)] defines amalgamation as the merger of one or more companies with another or the merger of two or more companies to form a new company, in such a way that all assets and liabilities of the amalgamating companies become assets and liabilities of the amalgamated company and shareholders not less than nine-tenths in value of the shares in the amalgamating company or companies become shareholders of the amalgamated company. Merger is to expand the business but when the main and only purpose of the transaction is pooling of assets then it is known as amalgamation.
further to clarify.. in AS-14 there are two types of mergers defined 1. amalgamation in the nature of merger. 2. amalgamation in the nature of purchase.
Takeover....it is an aquisition of shares carrying voting rights in a company with a view to gain control over the management of the company... Whereas Absorption is a process where a company takes another company and the former company will only be there. viz. Co. A <--Co.B ==Co. A . ie., Co. B is swallowed by Co. A
When any of the conditions of the Merger is not followed , it is called amalgamation.
You know that one of the Basic conditions of merger is -
90% or more share holders to continue as share holder in the amalgamated co.
Now suppose only 80% share holders continues- this will be called amalgamation and not merger.
If assets and liabilities have been taken over at book value it is merger but if separate consideration is decided for each of the items -it is amalgamation.
You can say in merger conditions are to be followed in totality. Whereas the same is not compulsory in the case of amalgamation.
Amalgamation is the term used in India for the combination of two or more businesses,
Absorption and merger are nothing but two types of amalgamation
(1) Merger - When two units combines to form a new unit, this is called as MERGER. e.g. A & B combines to form AB Ltd.
(2) Absorption - In Case of absorption, One company takes over the other company, in this case, One of the company remains in existence even after the amalgamation, while the other lost it identity. Purchase of A company by B company,B will remains in existence
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