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Accounting for Companies – II

notes 2.1 amalgamation of companies

When two or more companies having similar nature of business merge their businesses in order
to form a new company, such a merging is known as amalgamation of companies. In other words,
two or more existing companies will liquidate themselves and a new company will be formed to
take over the business of these companies.

Example: Suppose there are two companies X Limited and Y Limited engaged in the
similar nature of business. In the case of amalgamation, these two companies will liquidate
themselves and a new company (assume X Y Ltd.) will be formed to take over the business of
these two existing companies.
According to Halsburry’s Laws of England “Amalgamation is a blending of two or more existing
undertakings into one undertaking, the shareholder of each blending company becoming
substantially the shareholders in the company which is to carry on the blended undertakings.
There may be amalgamation either by transfer of two or more undertakings to a new company
or by the transfer of one or more undertakings to an existing company.”

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Caselet multi-use facility
he Cove Sports and Community Club was incorporated in 1994, but never really
functioned effectively as an overall management support body for the eight clubs
Tlocated there. Other issues such as financial sustainability and operational efficiency
also drove the formation of a new amalgamated structure. The process was a 12-month
project that also saw the Cove Sports and Community Club change its image from
traditional, smoky, sports clubrooms to a smoke-free centre connecting to all sectors of the
community.
The City of Marion played a facilitator role with the clubs embracing the concept for a new
‘management group/committee’ taking ultimate control. In February 2003 the incorporated
body made some constitutional changes and formed a management committee made up of
local business people, community members and some representation from the clubs. Some
of the barriers included some negative response due to the project needing to overcome
some difficult hurdles (financial, mistrust and lack of confidence that the complex would
achieve goals). A major issue has been the re-imaging of the complex as a leisure club that
responds to the leisure consumer, yet still balancing the needs of traditional, structured
sports such as football, cricket and netball. Positive outcomes have included increased
community ownership of the whole facility with a focus towards self-sufficiency.

Source: http://fulltext.ausport.gov.au/fulltext/2003/sa/amalgamation_guide_final.pdf
2.1.1 absorption of companies

In absorption, an existing company takes over the business of one or more existing companies,
which dissolve their businesses. In other words, no new company will be formed to take over
the business of the liquidating companies. Only an existing company will acquire the business
of these companies.

Example: If A Limited (an existing company) acquires the business of B Limited
(an existing company), it will be a case of absorption. In this case, B Limited has to dissolve
itself.

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