Distinction between amalgamation and internal reconstruction
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Amalgamation is when two or more companies merge. It is the conversion of two companies and two balance sheets into one company and one (combined) balance sheet. In amalgamation, the identity of both the companies exist and survive. It is the pooling of assets and liabilities and interest of two companies. It usually consists of two companies of same size and stature.
Example: Maruti motors(India) and Suzuki(Japan) were amalgamated to form Maruti Suzuki.
Absorption refers to takeover. In absorption, one company is taken over by another and hence it loses its own core identity. The identity of absorbing company only sustains. Here, it's not pooling of interest. It is the dominance of absorbing company. Here, it is the taking of a small company by a comparatively bigger business company.
Example: Takeover of Myntra by Flipkart.
Reconstruction.
It includes internal reconstruction and external reconstruction.
Internal reconstruction is carried when when the company faces consistent financial pressure and is incurring loss since long. Here, there might be some alterations in share capital and waiver of some debts. The company is neither liquidated nor any new company is formed. “ And reduced” words are to be added in balance sheet . This procedure includes involvement of court and is bit tedious and lengthy.
External reconstruction refers to forming of a new company to takeover the assets and liabilities of old company. Here, the new company if formed with the deliberate purpose of taking over the old company. And hence here old company is liquidated and new company is formed. It doesn't require court’s permission and takes less time as compared to internal reconstruction.
Example: Maruti motors(India) and Suzuki(Japan) were amalgamated to form Maruti Suzuki.
Absorption refers to takeover. In absorption, one company is taken over by another and hence it loses its own core identity. The identity of absorbing company only sustains. Here, it's not pooling of interest. It is the dominance of absorbing company. Here, it is the taking of a small company by a comparatively bigger business company.
Example: Takeover of Myntra by Flipkart.
Reconstruction.
It includes internal reconstruction and external reconstruction.
Internal reconstruction is carried when when the company faces consistent financial pressure and is incurring loss since long. Here, there might be some alterations in share capital and waiver of some debts. The company is neither liquidated nor any new company is formed. “ And reduced” words are to be added in balance sheet . This procedure includes involvement of court and is bit tedious and lengthy.
External reconstruction refers to forming of a new company to takeover the assets and liabilities of old company. Here, the new company if formed with the deliberate purpose of taking over the old company. And hence here old company is liquidated and new company is formed. It doesn't require court’s permission and takes less time as compared to internal reconstruction.
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