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Amalgamations of Companies under the Companies Act

By Krishanth Rajasooriyar |  25th March 2020

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Amalgamation is the coming together of two or more companies to form a single unified entity. In simple terms, the combined businesses of two or more existing companies, including all assets and liabilities of such amalgamating companies, are subsumed or transferred by the operation of law into an existing company or a new company formed for such purpose. The shareholders of the existing undertakings thereby become the shareholders of the combined (amalgamated) company. One of the innovative features of the Companies Act, No. 7 of 2007, was the introduction of a simple and straightforward method for the amalgamation of Companies.

The law governing "Amalgamations" is to be found in Part VIII of the Companies Act. The Act does not however, define the term and accordingly, it should be given its ordinary dictionary meaning. The dictionary [1] defines the term to mean "combine, or unite to form one organisation or structure". Amalgamation occurs by mutual understanding between both entities that are to be amalgamated, and is intended to benefit the shareholders of both companies. At this point, it will be relevant to differentiate between acquisitions, and takeovers, in relation to amalgamations. Both of these processes are distinct from amalgamation. Acquisition takes place when one company simply buys out another, and in takeover, the controlling interest of the company is acquired by another company either by friendly or hostile means.