What is an amalgamation?

An amalgamation permits two or more corporations, including holding or subsidiary corporations, to be combined into one corporation. We can assist you with your corporate amalgamation. Amalgamations are often used during the purchase of a business or as part of a reorganization which may be undertaken for corporate or tax reasons. During an amalgamation, all the assets and liabilities of the amalgamating corporations continue into the amalgamated corporation.

The corporations that are to be amalgamated must be governed by the same law. For example, the corporations must be both Ontario corporations or must be both Canada corporations. If the corporations are not governed by the same law, you must first continue a corporation into the jurisdiction of the other corporations. More information on continuances can be found here.

For both Ontario corporations and Canada corporations, there are two types of amalgamations. A short for amalgamation and a long form amalgamation. In both a long form amalgamation and a short form amalgamation, you can amalgamate more than two corporations at a time.

Why amalgamate companies?

Amalgamations are almost always financially driven. Amalgamating multiple companies will limit financial and legal compliance. After an amalgamation, there are less companies then there was before the amalgamation. Thus, there will be less corporate entities to maintain. Maintaining a corporate entity properly is difficult. 

Amalgamating entities can be a useful tool to deal with liabilities as well. For example, a large construction company will have multiple projects ongoing at any given time. To minimize their exposure, they will incorporate single purpose corporations (also known as special purposes entity or special purpose corporation) to operate each project they have. This special purpose entity will enter into an agreements which take on the liabilities associated with each project. If a company has 12 projects, 12 corporate entities could be incorporated and maintained. Once the project is complete, those liabilities remain. Those liabilities should be extinguished after the ultimate limitations period has passed which is 15 years in Ontario (subject to certain exceptions). Thus, a large corporation with near perpetual existence would amalgamate those 12 corporate entities and maintain the amalgamated corporations once the limitations period has passed.

Short Form Corporate Amalgamation

A short-form amalgamation is easier to complete as an amalgamation agreement is not necessary. Rather, a short form amalgamation must simply be  approved by a resolution of the directors. It does not require approval of the shareholders. There are two types of short-form amalgamation.

• Horizontal Short Form Amalgamation – A horizontal short-form amalgamation involves the amalgamation two or more wholly-owned subsidiaries of the same holding corporation (also known as the parent corporation). Once this amalgamation is complete, the shares of all but one of the subsidiaries will be cancelled. The articles of amalgamation of the amalgamated corporation must be the same as the articles of the amalgamating subsidiary corporation whose shares are not cancelled. The one exception to the foregoing is the name, which can be different.
• Vertical Short Form Amalgamation – A vertical short-form amalgamation involves a holding corporation (also known as a parent company) and one or more wholly-owned corporate subsidiaries. Once this amalgamation is complete, the articles of amalgamation must be the same as the articles of the amalgamating holding corporation, except for the name, which can be different.

Long Form Corporate Amalgamation

Anything that is not considered a short form amalgamation is considered a long form corporate amalgamation. A long-form amalgamation requires each amalgamating corporation to sign an amalgamation agreement and submit it for approval at a meeting of shareholders. An amalgamation agreement will set out the terms under which the corporations are to amalgamate. Amalgamation agreements are complex as they must specify the framework under which corporations will amalgamate.