Merger vs Amalgamation: Understanding the Overlap and Distinctions

 Introduction: Clarifying Two Similar Terms

In the world of corporate finance, ‘merger’ and ‘amalgamation’ are often used in discussions about company combinations. While they seem very similar, and sometimes are used interchangeably, there can be subtle but important distinctions, particularly depending on the legal jurisdiction (like India). QVSCL clarifies the relationship between these two terms.

Defining Merger

A merger is a broad term for the combination of two or more companies. As discussed previously, it generally takes two forms:

• Merger by Absorption: One company takes over the assets and liabilities of another; the absorbing company continues, and the absorbed company dissolves. (A + B = A)
• Merger by Consolidation: Two or more companies combine to form an entirely new legal entity, with the original companies dissolving. (A + B = C)

Defining Amalgamation

Amalgamation is a more specific legal term, very prominent in Indian company law (Companies Act, 2013).

• Core Meaning: Amalgamation involves the blending of two or more existing companies into a new third entity. The original companies are dissolved without going through the process of winding up (liquidation).
• Structure: Company A + Company B = New Company C. (A and B dissolve).

The Key Point of Comparison

The core difference often highlighted is:

• Amalgamation always results in the formation of a new company. Both original companies cease to exist.
• Merger can result in a new company (consolidation type), OR it can result in one of the original companies surviving (absorption type).

Therefore, amalgamation is essentially the same as a merger by consolidation. However, the term ‘amalgamation’ is often preferred in legal documentation and proceedings governed by specific statutes like India’s Companies Act, which outlines the procedure for ‘Schemes of Arrangement involving Amalgamation’.

Why Use Different Terms?

• Legal Specificity: ‘Amalgamation’ is the term used in specific sections of laws like the Indian Companies Act, dictating a particular procedure (requiring NCLT approval, etc.). Using this term ensures alignment with the legal framework.
• General Business Usage: ‘Merger’ is a more common, broader business term covering both absorption and consolidation scenarios.

QVSCL’s Guidance

From a practical business outcome perspective (two companies combining into one new one), a merger by consolidation and amalgamation achieves the same result. However, from a legal process standpoint, especially in India, structuring a deal as an ‘amalgamation’ under the Companies Act involves specific steps and approvals. QVSCL  ensures that your transaction structure uses the correct legal terminology and follows the required procedures, whether it’s technically an absorption merger or an amalgamation leading to a new entity.