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CS Executive · Setting Up of Business, Industrial and Labour Laws · Business Collaborations

Sundaram Textiles Ltd. and Kaveri Fabrics Ltd. decide to combine. Both companies will cease to exist, and a completely new company, Southern Weaves Ltd., will take over their businesses and issue shares to their shareholders. Which form of corporate combination is this?

This is an amalgamation by formation of a new company, also called consolidation. Both existing companies are dissolved and a new company takes over their businesses and issues shares to their shareholders. In absorption, by contrast, one existing company survives and the other merges into it.

  1. AAmalgamation by formation of a new companyCorrect
  2. BAbsorption of one company by another
  3. CHostile takeover through open offer
  4. DDemerger of an existing undertaking

Explanation

When two or more existing companies are dissolved and a new company is formed to take over their business, it is an amalgamation by consolidation (formation of a new company). In an absorption, one existing company survives and takes over the other. A demerger splits a business and a hostile takeover does not involve both companies ceasing to exist.

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