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Amalgamation

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In simple terms, amalgamation means the action, process, or result of combining or uniting two or more companies into a larger single company. The process creates a new company in which none of the pre-existing companies survive.

Here are the most important reasons why companies perform amalgamation:

  • To access new markets, technologies and clients / geographies.
  • For cheaper financing for a bigger company
  • Due to cost savings by increase in bargaining power with suppliers and clients
  • In order to eliminate competition
  • To reduce taxes

Normal dictionary definition will not be taken into consideration if a term has been specifically defined under the Act.

Amalgamation as per Indian Income tax act 1961

Section 2 of Indian Income tax Act, 1961 defines amalgamation as follows;

“amalgamation”, in relation to companies, means the merger of one or more companies with another company or the merger of two or more companies to form one company (the company or companies which so merge being referred to as the amalgamating company or companies and the company with which they merge or which is formed as a result of the merger, as the amalgamated company) in such a manner that—

 (i) 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;

 (ii) all the liabilities of the amalgamating company or companies immediately before the amalgamation become the liabilities of the amalgamated company by virtue of the amalgamation;

(iii) shareholders holding not less than three-fourths in value of the shares in the amalgamating company or companies (other than shares already held therein immediately before the amalgamation by, or by a nominee for, the amalgamated company or its subsidiary) become shareholders of the amalgamated company by virtue of the amalgamation,

otherwise than as a result of the acquisition of the property of one company by another company pursuant to the purchase of such property by the other company or as a result of the distribution of such property to the other company after the winding up of the first-mentioned company;