Amalgamation refers to the union of two or more incorporated companies. The resultant amalgamated company assumes the assets and liabilities of each company that has combined. The amalgamation process whereby the rights, assets, liabilities, privileges and obligations of the amalgamating companies are transferred to and vested in the amalgamated company, is effected by the operation of law.
Such amalgamations operated by law does not require the sanction of the courts. The amalgamated company could either be a new one or an ongoing one, whereby one or more companies will combine into an existing company, and continue as an ongoing entity. The shareholders of the amalgamating company will become the shareholders of the amalgamated company. The Companies Act governs the amalgamation process of two or more incorporated companies. (sections 215a-h).
Types of Amalgamation
There are two schemes of amalgamation:
- Standard form Amalgamation: In this scheme, any two or more companies may combine and continue as one entity.
- Short form Amalgamation: This scheme is shorter but this is applicable for the amalgamation between a company and one or more of its wholly-owned subsidiaries; or two or more wholly owned subsidiaries of the same parent.
In both the schemes, the amalgamating companies can choose between forming a new company after amalgamation or have one of the amalgamating company as the amalgamated company.
The process of Amalgamation
Several procedural steps need to be completed by the amalgamating companies for the successful consolidation. The following is an overview of the procedures under the Standard Scheme and Short-Form Scheme.
Short Form Amalgamation
Standard Form Amalgamation
Although similar to the Short Form scheme, the Standard Form scheme is relatively elaborate involving more steps to ensure that the rights of minority shareholders are protected because the amalgamation is between two or more unrelated entities. The additional requirements from each element of the entities as discussed under the Short Form Amalgamation are outlined below.
Effects of Amalgamation
- the amalgamated company shall have the name specified in the amalgamation proposal
- all the property, rights and privileges of each of the amalgamating companies shall be transferred to and vested in the amalgamated company
- all the liabilities and obligations of each of the amalgamating companies shall be transferred to and become the liabilities and obligations of the amalgamated company
- all legal proceedings pending by or against any of the amalgamating company may be continued by or against the amalgamated company
- any conviction, ruling, order or judgment in favour of or against an amalgamating company may be enforced by or against the amalgamated company
- the shares and rights of the members in the amalgamating companies shall be converted into the shares and rights as provided for in the amalgamation proposal
- employees of each of the amalgamating companies shall continue as the employees of the amalgamated company. The amalgamation will not lead to termination of the employment contract instead, like all other contracts and obligations, shall continue to be effective as if the contract was made between the amalgamated company and the employee unless there is a clause providing an option of terminating the contract as a result of a change in control.
Before commencing the process of amalgamation, the amalgamating companies should consider its impact on their respective stakeholder groups, namely clients, suppliers, partners, employees and the shareholders. After assessing the impact, the proposed amalgamation should only be pursued if it brings substantial benefits, involves minimum negative impact that can be potentially mitigated by undertaking specific measures.
The amalgamating companies should consider the tax implications on the amalgamated company – whether it would increase or minimise its exposure to tax, benefits from concessions and waivers and other tax advantages and risks.
For more on tax obligations for businesses, rates and requirements, read our article on corporate tax in Singapore.
The amalgamating companies should consider if the amalgamation resulting in a new company with a new name, will erode the brand value and customer base that each of the amalgamating company had built over the years. Likewise, instead of retaining a brand name that has attracted disrepute or controversies, embracing new brand and identity may help them to erase the bad reputation.
The culture of the amalgamating companies must be evaluated and checked for competencies, and where there are potential conflicts identified, proper measures must be planned to manage the change.
The amalgamating companies should diligently scrutinise the implications of the liabilities, pending proceedings, or impending verdicts of the other companies entering the amalgamation.
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