Amalgamating Alberta Corporations
Creating a corporation is relatively easy, quick and inexpensive to do. Our corporate lawyers assist clients regularly to properly set up their Alberta corporation. Sometimes, as outlined below, people require an amalgamation of two or more corporate entities. The corporate amalgamation lawyers at Kahane Law Office in Calgary, Alberta can assist corporations to amalgamate two or more corporate entities into a single corporation.
Why Companies Complete Corporate Amalgamations
Generally, a corporate amalgamation occurs for one of two types of situation. The two types include situations where you have:
Combining Companies with the Same Shareholders
At times corporations with the same shareholders wish to combine multiple corporations into a single corporate entity. While people often incorporate multiple corporations to keep their various business interests separate, sometimes the need, and often cost, changes and their preference is to combine the companies into a single entity. This situation uses a short form amalgamation as described below.
Combining Companies with Different Shareholders
In other situations, companies owned by different shareholder(s) complete either, a combining of businesses, a buyout, or other purchase of another business. Instead of maintaining different companies, a corporation could combine the different companies into a single legal entity by way of an amalgamation. This situation uses a long form amalgamation as below.
Types Of Amalgamation In Alberta
Further to the above, two distinct types of corporate amalgamation exists. The type of amalgamation depends on the structure of the buyout as set out below. There two types include:
Short Form Amalgamations
To further complicate things, two types of short form amalgamations exist. A short form corporate amalgamation occurs with non-arm’s length amalgamations. Due to singular ownership, the directors of the companies may approve this process.
A vertical amalgamation occurs when a parent company amalgamates with one or more of its subsidiaries. This means that a company that owns another company (or companies) amalgamates with the company that it owns. In this case, the subsidiary company’s shares are cancelled and no new shares are issued by the combined corporation. Further, the parent company’s Articles of Incorporation become the Articles of Amalgamation of the finalized combined company.
A horizontal amalgamation occurs when two or more subsidiaries of a single company amalgamate to become a single entity. In this instance all shares of all the combined corporation(s) are cancelled except for those of a single company. The Articles of Amalgamation become the Articles of Incorporation of the final corporate entity after the corporate amalgamation.
Long Form Corporate Amalgamation
Long Form Corporate Amalgamations are used when one company buys out another in an arm’s length transaction. In this instance, the shareholders of the corporations looking to combine, must agree to the process and enter into an amalgamation agreement.
Things To Consider Prior To A Corporate Amalgamation
With all legal actions, specific legal consequences often result. Before changing the status of any corporation, the shareholders and directors should discuss the change with both their lawyer(s) and accountant(s). For example, matters that often come up as issues include:
- Existing mortgages provisions of any one corporation;
- Contractual terms of any current contract;
- Outstanding security agreements affecting any of the corporations;
- Tax consequences of amalgamation and effective date;
- Licensing provisions tied to any of the businesses at hand;
- Real estate lease agreements;
- Leasing agreements on equipment;
- Ongoing supplier agreements;
- Employment and contractor contracts with any of the relating companies; and lastly
- Required notice to any relevant customers involved.
Legal Effect Of Combining Companies
Legally, once two or more corporations are amalgamated, all of their respective liabilities as well as assets are combined into a single corporate entity. The amalgamation includes tax consequences, so your lawyer should work in conjunction with your accountant to ensure that no unforeseen tax consequences emerge as a result of the amalgamation.
How To Amalgamate A Corporation
The triggering document to any corporate amalgamation is the Articles of Amalgamation. Not only do the Articles of Amalgamation combine the separate corporate entities, but it becomes the Articles of Incorporation for the amalgamated on-going company. Consequently, correctly completing this process is critical.
Benefits Of Corporate Amalgamations
Many benefits exist and support a corporate amalgamation. The benefits vary entirely on the specific situation involved. Discussions with corporate lawyers and accountants reveal several of the benefits, however many benefits exist a business decision and not a legal one. For example, some of the benefits include:
- Ability to qualify for financing: Larger corporate entities often find qualifying for financing easier;
- Cost reductions: Larger scales often provide savings in terms of buying power of larger quantities by a single company, as well as cost reductions of redundancies;
- Tax advantages: Combining taxes often leads to the ability to use a tax loss in one company to offset the taxable gain of another;
- Competitive advantage: By becoming more efficient and effective, the combined company may realize a competitive advantage over competitors;
- Better branding and goodwill: A larger market share often means that more customers recognize the combined brand.
- Diversification: Some corporate amalgamations occur not to combine similar companies but to combine those that provide differing services but complement each other.
Risks Of An Improperly Completed Corporate Amalgamation
Similar to the advantages of combining companies, several risks exist as well. For example, some risks include:
- Unanticipated Tax Consequences: Often observed when an accountant is not consulted prior to the corporate amalgamation;
- Corporate Culture and Style clashes: The way a business runs often plays a crucial role in its success. Changing the culture or style may negatively impact the workplace and therefore performance;
- Employee Severance Liabilities: Finding efficiencies often leads to a corresponding reduction of the workforce. In addition, at times the changes lead to claimed constructive dismissal actions:
- Legal Liability: As outlined above in the “Things to Consider” section, liability may exist with regards to a variety of contract and debt obligations; and lastly
- Communications: Different companies communicate differently with customers, suppliers, contractors and employees. Introducing new communication styles may include negative consequences.
Corporate Lawyers To Complete Your Corporate Amalgamation
Proper execution of a corporate amalgamation is imperative to risk reduction and optimizing the benefits of combined companies. Corporate lawyers experienced with amalgamations assist you every step of the way. Call Kahane Law Office to book a consultation with our team to move your business forward. Call today! By phone at 403-225-8810 locally in Calgary, Alberta or reach us toll-free at 1-877-225-8817 or email us directly here.