Merger & Amalgamation/Demerger

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Merger or Amalgamation is an arrangement whereby the assets of two or more companies become vested in one company (which may or may not be one of the original two companies). It is a legal process by which two or more companies are joined together to form a new entity or one or more companies are absorbed by another company and as a consequence the amalgamating company loses its existence and its shareholders become the shareholders of the new or amalgamated company.
Demerger is an arrangement whereby some part /undertaking of one company is transferred to another company which operates completely separate from the original company. Shareholders of the original company are usually given an equivalent stake of ownership in the new company.

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Reasons for Amalgamation

Advantages of Amalgamation

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    Know more about it...

    A demerger is a form of restructure in which investors in the head entity (for example, shareholders or unitholders) gain direct ownership in an entity that they formerly owned indirectly.

    Demergers can often flatter the share price of each of the parent company and the spun-off entity.

    Mergers are most commonly done to gain market share, reduce costs of operations, expand to new territories, unite common products, grow revenues, and increase profits.

    The biggest disadvantage of demerger is that company loses economies of scale which it was enjoying due to the large size of the company.

    There are two types of amalgamation, including merger and purchase methods.

    Amalgamation of partnership firm is done to achive the following objectives :

    i) To avoid the cut-throat competition.

    ii) To minimize the common expenses of business.

    iii) To get advantage of large scale business.

    iv) To strengthen the capital position.

    In amalgamation, two or more existing companies are liquidated. Establishment and management charges are reduced. A new company is formed to take over the business of liquidating companies.

    The Act does not prescribe any particular criteria for the merger. It is depending on the parties to decide which company to take in for the deal. The Act does not prescribe the deal size also.

    The process of merger if followed as per the Act then the transfer of assets will not become transfer as per the Income Tax Act, 1961 which will be a great advantage.