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    Question

    When A Ltd. and B Ltd. go into liquidation and a new

    company X Ltd. is formed, it is a case of:
    A Absorption Correct Answer Incorrect Answer
    B External reconstruction Correct Answer Incorrect Answer
    C Amalgamation Correct Answer Incorrect Answer
    D Acquisition Correct Answer Incorrect Answer
    E Takeover Correct Answer Incorrect Answer

    Solution

    Amalgamation is the combination of one or more companies into a new entity. An amalgamation is distinct from a merger because neither of the combining companies survives as a legal entity; a completely new entity is formed to house the combined assets and liabilities of both companies. An amalgamation is an arrangement in which:       I.        The assets / liabilities of two or more firms become vested in another firm.     II.        As a legal process, it involves joining of two or more firms to form a new entity or absorption of one/ more firms with another.    III.        The outcome of this arrangement is that the amalgamating firm is dissolved / wound-up and loses its identity and its shareholders become shareholders of the amalgamated firm. Amalgamation is distinct from merger because a merger is a combination of two or more firms in which only one firm would survive and the other would cease to exist, its assets / liabilities being taken over by the surviving firm. A Merger is an arrangement in which the assets /liabilities being taken over by the surviving firm.

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