An amalgamation joins two corporations into one, which continues the existence of both: the property, the contracts and the obligations pass without assignment. A simplified amalgamation applies between corporations of the same group, vertically between a parent and its subsidiary or horizontally between sister corporations. It avoids the heaviness of a dissolution followed by a transfer of assets.
Many entrepreneurs find themselves, over the years, with two or three corporations of which only one really serves a purpose. Closing the others looks like the obvious solution. It is not always one, and amalgamation deserves to be compared before winding anything up.
What an amalgamation is, legally
The most important point fits in one sentence, and it changes everything: an amalgamation is not a disappearance followed by a rebirth, it is a continuation.
The amalgamating corporations are not dissolved and transfer nothing. The corporation resulting from the amalgamation continues their existence. Its property, its receivables, its debts, its contracts, its permits and the judicial proceedings under way pass to the amalgamated corporation by the sole effect of the law, with no deed of assignment, no consent to be obtained from each counterparty and none of the costs those assignments entail.
That is exactly what distinguishes an amalgamation from a dissolution with a transfer of assets, and it is why the comparison is worth making before choosing. The reasoning recalls that of prorogation: in both cases you preserve the legal personality rather than start from zero.
Vertical or horizontal
A simplified amalgamation comes in two configurations, and the vocabulary is more intimidating than the reality.
A vertical amalgamation joins a parent corporation and its wholly owned subsidiary. It is the classic case of the entrepreneur who created a corporation for one project, then placed it under the main corporation, and no longer has a reason to keep two entities.
A horizontal amalgamation joins sister corporations, that is, subsidiaries held by the same parent. It is used when two once-distinct activities have converged.
In both cases the simplification comes from there being no outside shareholder to protect: everything already belongs to the same person. That is what lightens the procedure compared with an amalgamation between independent corporations, which calls for an altogether different analysis and an altogether different budget.
Amalgamate, dissolve, or do nothing
| Short-form amalgamation | Dissolution and transfer | Statu quo | |
|---|---|---|---|
| Fate of the contracts | They follow, with no assignment | Each must be assigned | Inchangés |
| Third-party consents | Generally unnecessary | Often required | Aucun |
| Permits and accreditations | Follow in principle | À redemander | Inchangés |
| Number of entities afterward | One | One | Two or more |
| Annual obligations | Those of a single corporation | Those of a single corporation | Multiplied |
| Effort | A one-time project | Longer, more scattered | None, but recurring |
Before winding up a corporation you no longer need, check whether amalgamating would not be simpler.
What to verify beforehand
Four points regularly hold files up, and they can be checked in advance.
The compliance of both corporations. A corporation in default of its declarations, or worse struck from the register, cannot amalgamate as it stands. It has to be brought back into compliance first, which can add weeks and an unforeseen cost to the project.
The creditors and the security. Published hypothecs and guarantees follow the transaction, but the registers where they are entered must reflect the new reality. Some financing agreements further require to be informed, or even to consent, before a reorganization.
Leases and sensitive contracts. Even though an amalgamation avoids assignments, some contracts contain stipulations about changes in the corporation’s organization. Reading them beforehand beats discovering them afterward; that is exactly what our article on reviewing a contract.
The tax side. An amalgamation has consequences for the tax attributes of the corporations joined, notably for carried-forward losses and the fiscal year end. That part is decided with your accountant before a date is set, not after.
What survives the amalgamation
The short answer: almost everything, and that is the point. The debts of both corporations become those of the corporation resulting from the amalgamation. Proceedings under way continue. The undertakings given by one bind the other. No one is released from an obligation by amalgamating, and that has to be understood both ways: your rights follow you, so do your debts.
On the identity side, the amalgamated corporation bears the name settled on in the articles of amalgamation, which may be that of either one or a new name, in which case the rules described in our article on choosing a name apply.
The file after the transaction
An amalgamation done well leaves a complete record: the resolutions of the directors and shareholders of each corporation, the amalgamation agreement, the articles of amalgamation and the certificate issued, then the registers of the resulting corporation, shareholders and securities properly reconstituted.
These documents join the minute book, where they form the link between before and after. That is what will let you show a buyer, in five years, that today’s corporation is the one that signed a contract in 2021. An amalgamation filed without the book keeping a record of it creates exactly the gap due diligence brings to light.
Then there is the outside world: the financial institution, the tax registrations, the permits, the insurance, the stationery. An update with the register closes the loop.
Frequently asked questions
What happens to contracts on an amalgamation?
They follow. An amalgamation is not a disappearance followed by a rebirth but a continuation: the property, the receivables, the debts, the contracts and the proceedings under way pass to the resulting corporation by the sole effect of the law, with no deed of assignment.
What is the difference between a vertical and a horizontal amalgamation?
A vertical amalgamation joins a parent corporation and its wholly owned subsidiary. A horizontal amalgamation joins sister corporations held by the same parent. In both cases the absence of an outside shareholder lightens the procedure.
Is it better to amalgamate or dissolve a corporation you no longer need?
An amalgamation avoids assigning each contract one by one and reapplying for the permits, which a dissolution followed by a transfer imposes. It deserves to be compared before winding anything up, especially if the corporation carries agreements in force.
The current government amounts are set out in the fee for a certificate of amalgamation.