A Brief Guide To Amalgamations In Ontario

What is an Amalgamation?

An "amalgamation" is a process by which two or more corporations (the "amalgamating corporations") merge into and carry on business as one corporation (the "amalgamated corporation").

Amalgamations are completed pursuant to the provincial Ontario Business Corporations Act, R.S.O. 1990, c. B.16(the "OBCA") or the federal Canada Business Corporations Act, R.S.C. 1985, c. C-44(the "CBCA"), depending on the incorporation jurisdiction of the amalgamating corporations. The amalgamation process is largely the same under each statute.

Amalgamating corporations must be incorporated pursuant to the same statute. If one is provincial and the other federal, then one corporation must first apply for a continuance under the other statute.

There are two types of amalgamations:

Long-Form Amalgamations¹
- Long-form amalgamations occur between two (or more) unrelated, arm's-length corporations. A long-form amalgamation requires each amalgamating corporation to sign an Amalgamation Agreement and submit it for approval at a meeting of shareholders. The agreement will be adopted if the shareholders of each amalgamating corporation approve the agreement by special resolution (i.e. a two-thirds majority of the votes) for all relevant classes or series of shares.
Short-Form Amalgamations²
- In contrast, short-form amalgamations occur between related corporations. Short-form amalgamations do not require shareholder approval and can be approved by a resolution of the directors of each amalgamating corporation. An amalgamation agreement is also not necessary. This means that a short-form amalgamation is often much more expedient and simpler than a long-form amalgamation.

There are two kinds of short-form amalgamations:

Vertical Short-Form Amalgamation:³: A holding corporation amalgamates with one or more of its wholly owned subsidiaries. The articles of amalgamation must be the same as the articles of the amalgamating holding corporation, apart from the name.
Horizontal Short-Form Amalgamation⁴: Two or more wholly-owned subsidiaries of the same holding company amalgamate. The shares of all but one of the subsidiaries must be cancelled and the articles of amalgamation must be the same as the articles of the subsidiary corporation whose shares were not cancelled, apart from the name.

How Do You Complete an Amalgamation?

There are several key steps that the amalgamating corporations must take when completing an amalgamation:

1. Prepare the Amalgamation Agreement

If proceeding by way of a long-form amalgamation, the directors of the amalgamating corporations must first negotiate and prepare an Amalgamation Agreement (the "Agreement"), setting out the terms and means of carrying out the amalgamation. Such agreements can be complex and must include the following:

The provisions required in the Articles of Amalgamation;
An explanation of how the shareholders of each amalgamating corporation are to receive shares of the amalgamated corporation, money, or securities of any corporate body other than the amalgamated corporation, in the amalgamation;
The manner of payment of money instead of the issue of fractional shares of the amalgamated corporation or of any other body corporate the securities of which are to be received in the amalgamation;
Whether the by-laws of the amalgamated corporation are to be those of the amalgamating corporations and the address of where a copy of the proposed by-laws may be examined; and
Any other details necessary to complete the amalgamation and provide for the management and operation of the amalgamated corporation.⁵

In addition, if the amalgamation occurs under the CBCA, the Agreement must include the name and address of each proposed director of the amalgamated corporation.⁶

2. Obtain Approval of the Amalgamation Agreement

The Agreement must be approved via a special resolution of the shareholders of each amalgamating corporation. However, if proceeding by way of a short-form amalgamation, an amalgamation agreement is not required; the amalgamation must simply be approved by a resolution of the directors of each amalgamating corporation.

3. File the Appropriate Documents

After the Agreement is approved (if applicable), the amalgamating corporations must file the Articles of Amalgamation (the "Articles"). The Articles must have attached a statutory declaration of a director or officer of each amalgamating corporation which states that:

There are reasonable grounds to believe that each amalgamating corporation is able, and the amalgamated corporation will be able, to pay its liabilities when they become due and that the realizable value of the amalgamated corporation's assets will not be less than the aggregate of its liabilities and stated capital of all classes; and
There are reasonable grounds to believe that:
1. no creditor will be prejudiced by the amalgamation; or
2. adequate notice has been given to all known creditors and no creditor objects on reasonable grounds that are not frivolous or vexatious.⁷

Upon receipt of all required documents, the Director will issue a certificate of amalgamation. The amalgamation will become effective on the later of the date specified in the Articles or upon the date of filing the required documents.

Why Do Corporations Amalgamate?

There are several benefits to amalgamating, including:

Costs Saving: Amalgamations can make operations more efficient by reducing overhead expenses and managerial costs when two (or more) corporations merge into one.
Greater Market Competitiveness: If the amalgamating corporations are involved in the same business, the amalgamation can reduce competition in that marketplace. The amalgamated corporation may also be able to reach a broader customer base if it retains the customer and business of all of the amalgamating corporations.
Tax Advantages: The amalgamated corporation may have less tax liability through carrying forward tax losses or accessing additional tax credits, depending on how it is structured. Amalgamations can also be used to transfer assets between corporations without triggering a deemed disposition of the assets and incurring the subsequent tax liabilities.
Greater Access to Capital: The amalgamated corporation will have access to the cash and capital of the amalgamating corporations. With more capital, the amalgamated corporation may have more opportunities for growth and greater access to financing.

What Should You Consider Before Amalgamating?

Shareholder Approval and Dissenting Rights

Long-form amalgamations require the approval of shareholders via special resolution with a two-thirds majority of the votes. Any shareholder who disagrees with the amalgamation or the terms of the Agreement has dissenting rights,⁸ including the right to be paid for the fair value of their shares in the amalgamating corporation. If many shareholders exercise their dissenting rights, this may add a significant cost to the amalgamation.

Existing Contractual Rights

Amalgamating corporations are likely to have existing contracts, permits, licenses, and other rights. Following the amalgamation, these contractual rights may need to be renegotiated or assigned to the amalgamated corporation, which may involve obtaining consent or approval from the other contracting parties depending on the terms of the contract.

Employment Implications

When corporations amalgamate, the rights of their employees must be considered. An amalgamation does not automatically terminate all employee's employment contracts. In an amalgamation, the amalgamated corporation assumes the role of employer for all of the existing employees of the amalgamating corporations. This means that the employees' length of employment, which impacts their entitlement to notice of termination, severance pay, vacation, and statutory leaves under the Employment Standards Act, 2000, S.O. 2000, c. 41, will include their employment under the amalgamating corporations and the amalgamated corporation. This also means that the amalgamated corporation will assume all termination and severance obligations with respect to the employees transferred from the amalgamating corporations.

Due Diligence

For long-form amalgamation in particular, the amalgamating corporations should conduct their due diligence prior to finalizing the Agreement. Proper due diligence includes obtaining full disclosure from the other amalgamating corporations with respect to their financial, legal, operational, tax structures and liabilities. This disclosure should be closely examined to identify any possible issues that could impact the value or structure of the amalgamation and to minimize the risk of assuming unexpected or undisclosed liabilities.

Tax Implications

Amalgamations have significant tax implications for all corporations involved. Section 87 of the Income Tax Act, R.S.C., 1985, c. 1 (5th Supp.) sets out extensive rules regarding the taxation of amalgamating and amalgamated corporations.

The tax treatment of the amalgamation depends highly on the context, such as whether the transaction is structured as an asset or share amalgamation and the tax characteristics of the amalgamating corporations. As such, it is crucial to consult a professional with experience in corporate tax when drafting the Agreement and carrying out the amalgamation to fully understand the tax implications that may arise.

Risks of Amalgamating

Before you begin the process of an amalgamation, you should also consider the potential consequences that may arise, namely:

Amalgamations may reduce a corporation's workforce by making some positions redundant. As a result, the amalgamated corporation may be liable for providing employees with termination and severance pay.
The amalgamated corporation takes on the debts and liabilities of the amalgamating corporations, which may result in significant debts and liabilities. Proper due diligence prior to the amalgamation will provide a better understanding of the debts and liabilities that the amalgamated corporation will assume and minimize the risk of undisclosed debts and liabilities.
The amalgamated corporation may face challenges in integrating the workforces of the amalgamating corporations. The amalgamated corporation should expect and prepare for issues such as workplace culture clashes, operational inefficiencies, and disagreements among the management team.
Amalgamated corporations may face increased scrutiny from regulatory bodies such as the Ontario Securities Commission and the Canadian Competition Bureau, especially when the amalgamation raises conflict of interest concerns or reduces market competition.

Conclusions

Amalgamations are complex corporate transactions with many legal, financial, and corporate implications. Accordingly, it is vital to consult with an experienced corporate lawyer prior to beginning an amalgamation and throughout the amalgamation process.

This blog was co-authored by Articling Student, Leslie Haddock.

Footnotes

1. See Business Corporations Act, R.S.O. 1990, c. B.16, ss. 175-176 ("OBCA") and Canada Business Corporations Act, R.S.C. 1985, c. C-44, ss. 182-183 ("CBCA").

2. OBCA. supra, ss. 177(1)-(2) and CBCA, supra, ss. 184(1)-(2).

3. OBCA, supra, s. 171(1) and CBCA, supra, s. 184(1).

4. OBCA, surpa, s. 171(2) and CBCA, supra, s. 184(2).

5. OBCA, supra, s. 175(1) and CBCA, supra, s. 182(1).

6. CBCA, supra, s. 182(1)(b).

7. OBCA, supra, s. 178(2) and CBCA, supra, s. 185(2).

8. OBCA, supra, s. 185 and CBCA, supra, s. 190.

Originally published January 6, 2025

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.