Save money on taxes, increase shareholder value, and expand your small business by considering amalgamation with another company that is similar in business or operations. By definition, amalgamation is the consolidation of two or more companies into one new entity with combined assets and liabilities. Amalgamation involves two types of companies. The transferee, or stronger, company absorbs the transferor, or weaker, company. This is different from mergers, which occur between two companies that are nearly equal in strength, size, and customer base.
Two main types of amalgamations exist: amalgamation as part of a merger and amalgamation as part of a purchase. If you choose amalgamation as part of a merger, all of transferor companies’ assets become the property of the transferee company. This type of amalgamation combines the involved companies’ business, assets, and liabilities, along with the shareholders’ interests. The business of the transferor company continues on, and shareholders keep a proportionate share in the new company if they meet certain criteria. If the involved companies do not meet the conditions for amalgamation as part of a merger, they can amalgamate as part of a purchase. In this situation, one company is acquired by the other company and the business of the transferor company may or may not continue. In addition, shareholders do not keep a proportionate share in the new company.
No matter what type of amalgamation you perform, the Canadian government must approve the process and receive proof, either through a court order or through a certificate of amalgamation from Corporations Canada or the provincial or territorial government. Although amalgamation can seem overwhelming, when executed properly it provides a host of benefits for your small business, including acquiring cash resources, eliminating competition, reducing risk by increasing diversification, and achieving overall financial gain.