Distinguish between Amalgamation, Absorption and External Reconstruction of Company.

Difference between Amalgamation, Absorption and External Reconstruction Basis Amalgamation Absorption External Reconstruction Meaning Two or more companies are wound up and a new company is formed to take over business. In this case, an existing company takes over the business of one or more existing companies. In this case, a newly formed company takes over the business of an existing company. Minimum number of Companies involved At least three companies are involved. At least two companies are involved. Only two companies are involved. Number of new resultant companies Only one resultant company is formed. Two companies are wound up to form a single resultant company. No new resultant company is formed. Only one resultant company is formed. Under this case a newly formed company takes over the business of an existing company. Objective Amalgamation is done to cut competition and reap the economies in large scale. Absorption is done to cut competition and reap the economies large scale. External reconstruction is done to reorganise the financial structure of the company. Example A Ltd. and B Ltd. amalgamate form C Ltd. A Ltd. takes over to the business of another existing company B Ltd. B Ltd. is formed to take over the business of an existing company A Ltd.