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Ontario BUSINESS Law: Amalgamation

Amalgmation is a corporate structuring process that merges two or more corporations into one. There are many reasons why corporations may wish to do so - business synergies, cost savings, tax benefits, market dominance, etc. While the nature of the decision to merge is business in essence, the process of executing the decision involves complex legal considerations. Depending on the specific context of the merger considered, there are different procedures to follow. In the end, amalgamation is about eliminating and changing the substance of corporations which are creations of the law. Beyond a jurisprudential justification that since the law created corporations the law should also govern how the substance of the creations can be changed later, it simply is in the interests of the public that corporation amalgamations be closely regulated to prevent abusion. This article will walk through some of the most important legal requirements for corporation amalgamations. 

There are three sets of procedural rules for three different types of amalgamation, classified by the relationship between the involved corporations. The first type is named short form verticle in which a wholly-owed subsidiary company merges into the parent company. The second type is named short form horizontal, and in this scenario, two companies wholly-owed by the same parent company (sister companies) merge into one. The subsidiary and sister companies in these two groups must be wholly-owed, 100%, by the parent company. The last type applies when two or more companies, that are neither wholly owed by a same parent company nor wholly-owed parent-subsidiary companies, decide to merge into one. They are separate companies and stricter rules apply.

Short Form Verticle

Short form verticle, the process of a wholly-owed subsidiary merging into its parent, involves the least risk of abusion and disagreement since the ownership structrure is identical before and after the amalgamation. Parent company is the only shareholder of the subsidiary company, so minority shareholder protection is irrelevant. The amalgamation is simply an internal reorganization within a corporate group. Regardless, certain standards are still put in place to ensure responsibility and prevent fraudulent transfers that may harm the parent company’s stakeholders.

The first step in this process is for the directors of both the parent and subsidiary company to pass a resolution approving the amalgamation.1 The resolution must state: (1) the shares of the subsidiary will be cancelled without any repayment of capital; (2) the by-laws of the after-amalgamation parent company is the same as the by-laws before the amalgamation; (3) the articles of after-amalgamation parent company is the same as the articles before the amalgamation; (4) the after-amalgamation company may not issue any asset in connection with the amalgamation.2 These rules ensure consistency in how the amalgamated entity is managed, prevent fraudulent transfer of assets under the disguise of an amalgamation that changes no ownership in essence, and imposes responsibility on the directors to comply with the rules.

Short Form Horizontal

Short form horizontal, on the other hand, is the process of two or more wholly-owned subsidiaries merging into one wholly-owned subsidiary. The essence of this type of amalgamation is highly similar to that of a short form verticle. The ownership structure is unchanged and and the transaction represents merely an internal reorganization. The common parent company is the only holder before and after the amalgation. The only difference is that the parent company used to own the underlying assets in two subsidiaries, and now the parent company owns the same underlying assets aggregated in one subsidiary. Although the essence of verticle and horizontal amalgamations are the same, the ownership structure are different. Therefore, the procedural rules are slightly different. 

Similarly, the process initiates by directors of each subsidiary company passing a resolution.3 The resolution must provide that: (1) except the subsidiary company that survives the amalgamation and receives all the assets, all other subsidiaries’ shares must be cancelled without any repayment of capital; (2) the by-laws of the amalgamated company must be the same as the by-laws of the surviving company before the amalgamation; (3) the articles of the amalgamated company must be the same as the articles of the surviving company before the amalgamation; (4) the stated capital of the subsidiaries that are absorbed by the surviving company must be added to the stated capital of the surviving subsidiary.4 These rules ensure consistency in how the subsidiary is managed, prevent fraudulent transfers and carry over the stated capital into the amalgamated company.

Long Form

Long form amalgamations involve the participation of two or more companies that are independently owned -they are neither wholly owned parent-subsidiary of each other nor individually wholly owned by a common parent company. Unlike short form amalgamations, which are in essence internal reorganizations that do not change the undelying ownership structure, long form amalgamations represent a restructuring process involving multiple independent entity that in the end do change the ownership structure. The deals tend to be more complex and more parties’ interests are at stake. Therefore, stricter rules are put in place.

The first step to initiate a long form amalgamation is for the corporations to enter into an amalgamation agreement. Such agreement must address a list of matters outlined by **S175**. Then the agreement must be approved by a special resolution (a resolution that is supported by at least 2/3 of the votes) of the holders of the shares of each class entitled to vote.5 Dissenting shareholders are entitled to be paid the fair value of the shares.6 After the amalgamation agreement is adopted, a specific form named articles of amalgamation and statements from directors of each amalgamating corporation must be sent to the government. The directors’ statements must contain that: there are reasonable grounds for believing that each amalgamating corporation and the amalgamated corporation are liquid and are able to pay liabilities, no creditor is prejudiced, and notice has been provided to each known creditor.7 This step ensures that personal laibility is attached when corporations are amalgamated for prohibited purposes or procedures are not strictly followed. Once the government receives the document and approves the transaction, a certificate of amalgamation will be issued.

The above discussion covers the general framework for corporation amalgamation in Ontario and has left many context-specific nuanced issues undiscussed. Amalgamating corporation is not an easy task, so it is important to get a professional who understands the rules well to help you navigate through the process.




1  Business Corporation Act, R.S.O. 1990, c. B.16, s.177(1)(a)
2  Business Corporation Act, R.S.O. 1990, c. B.16, s.177(1)(b)
3  Business Corporation Act, R.S.O. 1990, c. B.16, s.177(2)(a)
4  Business Corporation Act, R.S.O. 1990, c. B.16, s.177(2)(b)
5  Business Corporation Act, R.S.O. 1990, c. B.16, s.176(4)
6  Business Corporation Act, R.S.O. 1990, c. B.16, ss.176(2),185
7  Business Corporation Act, R.S.O. 1990, c. B.16, s.178(2)