Dissimilarity between Amalgamation and Absorption

The dissimilarity between Amalgamation and Absorption

Amalgamation is the legal process, in which two or more companies combine themselves to form a new company. Absorption is when two or more companies are combined into an existing company. Both amalgamation and absorption relate to a merger of two or more companies. Amalgamation can take various forms, among others, also absorption.

The key difference between Amalgamation and Absorption lies in the fact that amalgamation means when more than two companies merge and form a new company whereas absorption means when a company undertakes another company but does not form a new company.

Following are the main differences between amalgamation and absorption:

  • Meaning

The process in which two or more companies are wound up to form a new company, which acquires their business is known as Amalgamation. The process in which one company takes over the other company is known as Absorption.

  • Liquidation

Two or more companies are liquidated in the process of amalgamation. When two companies join and liquidate to give birth to a new company is known as Amalgamation. One or more companies are liquidated in absorption. Absorption is a process whereby one company occupies control over the other company.

  • Formation

In amalgamation, a new company is formed to take over the business of vendor companies. In absorption, no new company is formed, only a purchasing or absorbing company takes over the business of the liquidated company.

  • Company Involvements

In amalgamation, there is a minimum of three companies involved, i.e. two amalgamating companies and one new company which are formed by the fusion of the two companies. Conversely, in Absorption, only two companies are involved.

  • Size

There is no such matter of the size of amalgamating companies. The size of the companies going through amalgamation is more or less the same. On the contrary, one company of bigger size overpowers the company of smaller size in Absorption. Generally, the size of the purchasing company is greater than that of the vendor company in absorption.

After studying the concept of Amalgamation and Absorption, we can say that there is a thin line difference between both terms. Both include acquisition and are done for expansion, growth, bigger market share, etc. The result of amalgamation is often a new legal entity with assets and liabilities of acquired companies. The result of the absorption is the “old” legal entity, which did not change the legal name, but solely increased the assets and liabilities by acquiring another company.