Amalgamating: The urge to merge

Time to keep a promise. In December, I wrote about 4-1/2 ways to kill off your company, legally. I mentioned amalgamation as the "1/2" way. So here's the scoop.

Amalgamation is the word for the legal process where two or more corporations become one continuing corporation. The "one flesh" concept (see Genesis 2:24) of what marriage means is one analogy that judges have used to describe amalgamation. But, these days, marriage isn't that good an analogy; we tend to focus too much on the separate identify of husband and wife (or spouse and spouse, seeing as I'm writing this in Canada). A better analogy (though one some judges have criticized), then, is to consider two streams flowing together as one. The individual identity of each stream is lost; and, in a certain sense, you have a brand new single entity -- not brand new in the sense of being without a history, such as a new-born infant. No, the continuing corporation is rather that sadder and wiser girl: it retains all the strengths but all the weaknesses and liabilities of the corporations from which it arose.

Why Amalgamate?

A variety of reasons are possible, but the primary reason is to simplify the corporate structure. Perhaps a subsidiary company is no longer useful, but can't be simply dissolved. Amalgamations can also be used in purchase situations, to merge a target corporation with an acquiring corporation. Obviously, here, you'll need to be aware of the income tax consequences of the result. A third reason might be to re-jig the shareholdings in a corporate structure, as there is some leeway to re-organize the share structure in the continuing corporation and make it different than the share structures of the amalgamating corporations.

Amalgamation Procedures

In brief, there are three different procedures that can be invoked in order to amalgamate. Some require more paperwork than others, and all involve, at the end, a filing with the Corporate Registry before they'll be effective. For more information about any of them, please contact us.

• Short-form amalgamations: These occur in two flavours: vertical and horizontal. "Short-form" means that there's less paperwork involved, so the costs are less and the amalgamation can be finished sooner. The procedure can be done without an amalgamation agreement or obtaining shareholder approval.

  • In a vertical short-form amalgamation, a wholly-owned subsidiary company (or more than one) gets absorbed into its (or their) parent holding company. The holding company must be incorporated in BC; the subsidiary companies can be incorporated anywhere. The resulting continuing company will have the identical share structure, and directors and officers, of the parent company. The shares of the subsidiary company will be cancelled, without compensation. Only the directors or shareholders of the parent company need to approve the amalgamation.

  • In a horizontal short-form amalgamation, two subsidiary companies amalgamate into one continuing subsidiary company. All amalgamating companies must be owned by the same corporation (that is, not by an individual). All of the shares of each amalgamating company must be held either by the parent or by the other amalgamating companies. The amalgamating companies must be incorporated in BC, but the parent company can be incorporated anywhere. The shareholders or directors of each amalgamating company must approve the amalgamation. And one company must be chosen as the primary company (that is, the company that will continue as the amalgamated company once the amalgamation takes effect).

• Non-court approved amalgamations: You will use this procedure for amalgamation when neither of the short-form procedures apply and there is no need (as is usually the case) to seek court approval of the amalgamation. These amalgamations have more paperwork than the short-form amalgamations. All participating companies must obtain shareholder approval for the amalgamation and must enter into a written amalgamation agreement, which must contain certain specified provisions, and have a director swear an affidavit as to certain facts. Where the required affidavit cannot be sworn, it will be necessary as well to formally notify creditors of the proposed amalgamation. This procedure gives the most flexibility to the amalgamating companies in terms of structuring the continuing company's directors, officers, articles and share structure.

• Court approved amalgamations: Companies will want to use this procedure, despite the extra expense involved in going to court, where the affidavit required for the non-court procedure cannot be sworn or where complying with the creditor-notification requirements would be too troublesome. This procedure is also used in some public securities transactions, involving US securities law. In addition to having an amalgamating agreement approved by their shareholders, the amalgamating companies will need to prepare court documents: a petition and supporting affidavit or affidavits. The application to court must be brought within the required deadline (not less than 6 days nor more than 2 months after the last company approved the amalgamating agreement). Creditors and shareholders each have the right to ask to be notified of the court date and to show up to object to the amalgamation.

Amalgamating your company with another is not an every-day kind of corporate transaction. But be aware of the procedure, and who knows--maybe your circumstances will require it one day.