What does amalgamation? An amalgamation of the company occurs when a corporation and one or more joint-stock or non-joint-stock companies merge into an independent economy. unit. It performs the functions of previously separate, independent organizations
What Is a Business Amalgamation?
In order to coordinate activities, protect common commercial interests, and improve the efficiency of functioning, enterprises may voluntarily combine production, scientific, commercial, and other types of activities, if this does not contradict the antimonopoly law. When drawing up selection criteria, it is important to consider that business consolidation is not for a short period of time, and therefore the selection process of a candidate must be extremely thorough, as it is carried out for the purposes of long-term cooperation.
The relationship between the acquiring company and the acquisition in the share acquisition qualifies as a parent-subsidiary relationship. The acquiring company is called the parent company (investor) and the acquired company is called the subsidiary. Companies related to each other are called branch (subsidiary) companies. Each of them continues to exist as a separate legal entity. face. The share of the subsidiary is reflected in the accounts of the parent company. Amalgamation reports are drawn up only in the case when the company’s amalgamation took place in the form of capital acquisition.
The selection of a partner or partners to the company’s amalgamation is a critical element of the merge process. When choosing, it is necessary to take into account both the compatibility of the strategies of companies and a number of other factors, from financial position to reputation in the market. It is unlikely that a company with a positive reputation that has existed on the market for a long period and has won a significant number of regular customers will want to merge with other “market players” with a mixed reputation, negative customer reviews, and an uncertain financial situation.
The Main Advantages of Amalgamation of Company
Small businesses, characteristic of commercial entrepreneurship, are very unstable and exist on average for three to five years. This does not mean that they go bankrupt, but most often they modify their activities or try to enter the market in the form of associations. The company’s amalgamation is carried out by enterprises on a voluntary basis or by the decision of the bodies that, in accordance with the current legislation, have the right to form associations of enterprises. An association of enterprises may include both resident and non-resident enterprises.
The company’s amalgamation is formed for an indefinite period (for example, corporations, concerns) or for a definite period until a certain goal or performance of certain tasks is achieved (for example, a consortium). The different procedure for establishing an enterprise association predetermines the possibility of creating economic associations or state (communal) economic associations.
The main advantages of company’s amalgamation are:
- cost reduction;
- higher qualification and specialization of enterprise management;
- reducing the cost of information and advertising;
- more favorable conditions for the purchase of resources, etc.
One of the factors in the search for a target company for an amalgamation is the temporary type of cash flow, which can be cyclical and countercyclical. Companies with cyclical cash flow have rise and fall in production that coincide with the cycles of the real economy, while counter-cyclical companies do not, and, as a result, they are less subject to fluctuations in the economy. By acquiring a ready-made enterprise, you can expand the range of goods sold in a short time.