What is an Amalgamation?
An amalgamation is a process by which two or more corporations combine to become one single entity.
Under the Quebec Business Corporations Act, there are two types of amalgamation: short-form and long-form. A short-form amalgamation allows a parent company to combine with its subsidiary. A long-form amalgamation allows a group of corporations governed by the Act to combine into a new entity.
When Do I Need an Amalgamation Agreement?
Long-form amalgamations require amalgamation agreements. In this situation, neither of the combining companies has control over the other. We draft an amalgamation agreement for each company to sign as approval of the transaction.
What Do I Put In An Amalgamation Agreement?
Here is a list of some of the key clauses to include in your amalgamation agreement. As amalgamations can carry significant tax consequences, we recommend booking a consultation with us to discuss your proposed transaction.
1. Name of the Amalgamated Corporation
The agreement will include the name of the amalgamated company. You can choose to keep the numbered corporation (ex: 8756-8494 Québec Inc), the name of one of the parties, or propose a change of name.
2. Head Office
Where is the head office located? The parties to the amalgamation must agree on a new headquarters. Usually, we select one of the offices of the existing companies to be the head office post-transaction.
3. Limitations on Activities
Are there any limits to the activities of the newly amalgamated corporation? This is where the parties will negotiate and specify the limitations if any.
4. Authorized Share Capital and Restrictions
What is the share capital of the newly formed corporation? Which classes of shares and what are the rights, privileges, conditions, and restrictions of each class? In certain cases, the parties can agree to retain the share capital of one company and use it to form the share capital of the amalgamated corporation.
5. Board of Directors
How many directors will serve on the new board of directors? This is also the time at which we will specify the names of the individuals that will hold the office of director in the amalgamated company.
Additionally, the agreement will contain a provision explaining when the future election of the board of directors will take place. This provision will also explain what happens in the case of a vacancy on the board of directors.
6. Shares of the Amalgamated Corporation
In this case, the agreement will include information on the conversion of shares from the existing corporation to the amalgamated company. It also includes information on the cancelled shares. An analysis of tax implications, and each company’s financials helps determine the conversion ratio of the shares.
If there is no conversion for certain shares then include a statement about the amount of money or other form of payment those shareholders will receive.
If instead the shares of one of the amalgamated corporations are cancelled without repayment of capital in respect of those shares, then a statement to this effect will be included in the agreement.
7. By-laws
The proposed by-laws for the amalgamated corporation. However, it is also possible to use the by-laws of one of the amalgamating companies as the by-laws of the newly amalgamated corporation. In this case, specify which corporation’s by-laws are being retained.
What other steps need to be taken?
In addition to negotiating and signing the amalgamation agreement, the board of directors and shareholders of each company have to take some steps to conclude the process.
First, ensure that your minute book is up to date. Check your securities register to ensure that the shares issued, the people to whom those shares are issued, and the price paid for the shares is reflected accurately.
Once the amalgamation agreement is drafted, the board of directors of each corporation must submit it to the shareholders for their approval. This approval is given by special resolution, which means that a resolution must be passed by at least two-thirds of shareholders eligible to vote on that resolution, or a resolution that needs to be signed by all shareholders.
Once approved by the shareholders, the directors or officers of each corporation will sign the amalgamation agreement.
Next is to file the articles of amalgamation with the Enterprise Registrar, who will issue a certificate of amalgamation. It’s only upon receipt of this certificate that the corporations will be officially amalgamated into the new company.
This blog post is not legal advice and is for general informational purposes only. Always speak with a lawyer before acting on any of the information contained herein.