AMALGAMATION

Business Purchase  -  Business Sale  -  Equipment  -  Buy-Out  -  Leasing  -  Financing  -  Corporate Rollover  -  Expanding into Canada

Contact Neufeld Legal PC at 403-400-4092 / 905-616-8864 or Chris@NeufeldLegal.com

An amalgamation is a corporate merger of two or more corporations continued as a fused corporation (but not a new corporation). Just as corporations are created and governed by the jurisdiction’s business corporations legislation, so too is the amalgamation process that results in their continuance as a fused post-amalgamation corporation. All the assets and liabilities, contracts and responsibilities, of each of the pre-amalgamation corporations continue with this fusion, nothing is lost or left behind; and without the need of far more complicated transferences or conveyancing.

The effects of a corporate amalgamation include:

- the predecessor corporations continue as one corporation (“Amalco”);

- the property of each predecessor corporation continues to be the property of Amalco;

- Amalco continues to be liable for the obligations of each predecessor corporation;

- existing actions, claims or liabilities to prosecution as against each of the predecessor corporations is unaffected, and actions or proceedings against a predecessor corporation may continue to be prosecuted against Amalco; and

- orders, rulings, judgments and convictions for or against a predecessor may be enforced by or against Amalco

As for the reasons for undertaking an amalgamation, they include:

- realizing economies of scale, competitive advantages and tax efficiencies;

- simplifying the corporate chart by amalgamation two or more predecessor corporations into Amalco (including the elimination of unwanted shell corporations, through their absorption into Amalco);

- facilitating corporate take-over strategies, which are aimed at squeezing out the minority through an amalgamation where the initial take-over bid did not secure the requisite share percentage acquisition to effectuate the force out of the minority;

- enabling the interest expense on debt used to acquire another corporation to be deducted in computing income from that corporation’s revenue for income tax purposes;

- facilitating the amalgamation on a tax neutral basis, thereby avoiding adverse tax consequences from streamlining corporate structures;

- tax deferrals will usually be available at both the shareholder and predecessor corporation levels;

- transfer taxes will not be exigible (are not subject to imposition by Revenue Canada);

- there will be no doubling up of employer contributions to the Canada Pension Plan and employment insurance;

- since consolidated tax returns are not permitted in Canada, an amalgation by a corporate group can deal appropriately with the tax losses or excess tax accounts in one corporation while having taxable income in another corporation;

- an amalgamation might be used as a technique to gain access to tax losses and other tax accounts of an unrelated or unaffiliated corporation;

- an amalgamation might be used to purify a corporation so that a shareholder who is an individual can take advantage of the capital gains exemption;

- an amalgamation might be used to merge a Canadian holding company of a non-resident shareholder with a public subsidiary of the holding company in order to permit the non-resident to more efficiently proceed with a secondary offering and take advantage of a capital gains exemption under the applicable tax treaty;

Naturally, the realization of these corporate and tax objectives is dependent on the appropriate structuring of the amalgamation, such that intended objectives are in fact realized and in conformity with the legal requirements sought by Revenue Canada.

For knowledgeable and experienced legal representation when undertaking an amalgamation or other corporate restructuring, contact corporate business lawyer Christopher Neufeld at Chris@NeufeldLegal.com or 403-400-4092 / 905-616-8864.