Three types of company merger

An amalgamation is the uniting of several corporations into one, and requires articles of amalgamation to do so. In order to amalgamate two or more corporations, it is imperative that the amalgamating corporations be governed by the same law; for example, it is not possible to amalgamate a provincial corporation with a federal corporation. In this case, one of the corporations must be continued in the other corporate regime so that both corporations are governed by the same law.

Three types of merger can be identified in the corporate laws. Here is an overview.

Vertical simplified merger

The vertical short-form amalgamation is probably the simplest amalgamation, requiring the least corporate formalities. It is mainly the case where a company holds all the issued shares of a subsidiary, and is therefore referred to as a merger of the parent company with its subsidiary.

Each of the merging companies must pass a resolution authorizing the merger, and provide for the following

1- All the shares of the subsidiary will be cancelled without repayment of capital;

2- The articles of merger will be identical to the articles of the parent company, except for the name which may be that of one of the merging companies;

3- The merged company will not issue any shares upon merger; and

4- The directorsof the company resulting from the merger will be those of the parent company and the internal regulations will also be those of the parent company.

Following the adoption of these resolutions, articles of merger may be filed with the competent authorities.

Simplified horizontal merger

This merger also involves simplified, but slightly different, formalities. A typical situation would be where a person (a legal entity for federal companies) holds all the shares in two companies, and wishes to merge these two companies to form a single one.

As with the vertical merger, a resolution of each company will be required to authorise the merger, and they must provide for :

1- the cancellation of the shares of all the shares of the merging companies, with the exception of the shares of one of them;

2- that the Articles of Association will be identical to the Articles of Association of which the shares have not all been cancelled (except for the name); and

3- that the share capital account of the merging companies will be added, to the extent determined by the companies, to the account of the company whose shares are not all cancelled.

Ordinary merger

Any merger that does not qualify for the short-form merger procedure will be an ordinary merger. In contrast to a short-form amalgamation, the amalgamating companies must enter into an amalgamation agreement. This agreement will have to provide, among other things, for the terms and conditions of the conversion of the shares as well as the name and domicile of the directorsof the company resulting from the merger. The merger agreement must be approved by the shareholders of each merging company. Finally, as in the case of a short-form merger, articles of amalgamation will have to be obtained, and will have to contain the elements normally found in articles of incorporation, in addition to the share conversion terms.