Document Title: importance of Amalgamation Absorption and Reconstruction

Paper code: 13024

Explaining the importance of Amalgamation, Absorption and Reconstruction

a)

Amalgamation is a consolidation of two entities to form a single entity. When two companies are combined to form one, amalgamation has occurred (Lan, et al., 2019). In amalgamation, the two combined entities survive as a legal entity, hence, the legal entity formed is a combination of the assets and liabilities of both companies. Neither of the old companies retain their former names and structure, instead consolidating assets to create something new.

On the other hand, the process in which one company acquires the business of another company is known as Absorption (Torres-Barreto, et al., 2020). Absorption is a way of business arrangement in which an existing company takes over the business of another entity. The entity who gets absorbed goes into the liquidation process. The absorbed company continues to run operations as it was doing before the absorption and staff continues to work under the new management. If any type of fund is being maintained for the employees of the company, it is taken over by the purchasing company.

There are so many reasons of absorption. One of them is that due to the formation of the new company, it will not get the reputation in the market as the old one. So, that is why, purchasing company absorbs an existing company to using its strength to exploit the opportunities exists in the market.