Can a buyer use amalgamation to acquire a business?

Amalgamation is a third way to bring two businesses together, alongside buying shares and buying assets. Instead of one party purchasing from the other, both corporations are merged into one by a statutory process. It can combine unrelated companies, because the agreement can have the target’s owners receive shares in the combined company, or money. Because it works by vote rather than individual sale, it behaves differently from either usual route.

How the transaction is assembled

Under Ontario’s Business Corporations Act, each corporation signs an amalgamation agreement setting the terms, including what each company’s shareholders receive: shares of the new corporation, money, or shares of another company. The directors then put the agreement to a shareholder meeting, and it is adopted by special resolution. The federal Act follows the same pattern for the long-form route.

Liabilities, dissenting owners and creditors

Once the articles of amalgamation take effect, the amalgamating corporations cease to exist separately and the amalgamated corporation is subject to all the liabilities and contracts of both, so no unwanted obligations are left behind in either one. Shareholders who object can seek payment of the fair value of their shares through the dissent process the Act describes. A director’s or officer’s statement filed with the articles must also give reasonable grounds for believing either that no creditor will be prejudiced or that known creditors have had adequate notice. Diligence into both companies’ debts therefore matters to each side.

Competition review still applies

The Competition Act defines a merger to include acquiring control or a significant interest in a business by amalgamation. Its notification rules also apply to a proposed amalgamation of entities that meet the size tests, which means notifying the Commissioner of Competition, with a waiting period before the deal can be completed that the Commissioner can end early. Whether a particular deal meets those tests is a question for a lawyer. Compare the routes in asset sale vs share sale in Canada.