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Business Combination :It is a voluntary association of firms for the achievement of common objectives to enjoy the monopoly advantages various firms combine themselves. The combination may be formed by a written or oral agreement among the firms. Sometimes firms decide to merge themselves into one unit. The main object of the business combination is to achieve common economic welfare for its members. But it is considerd to be unlawful if any of its objective is against the public interest. Business combination may be permanent or temporary. CAUSES OF BUSINESS COMBINATION GROWTH 1. Elimination of Competition :Due to hard competition among the firms rate of profit decreases. Some firms may suffer a loss also. So the industrialists feels pleasure to set up combination to avoid the competition. It increases the rate of profit. 2. To Solve Capital Problem :Small units of production face the problem of capital shortage. These can not expand the business. So small units may form a combination to over come this problem. 3. To Achieve Economies :Some small units cmbine themselves to achieve the economies of large scale. They purchase the raw material on loqw prices and sell the product on large scale cost of production falls and profit increases. 4. Effective Management :Generally small units are unable to hire the services of experts and experiancd managers. So
So small business units prefer to combine themselves for higher status. Now there is a close contact of businessman with the others. 5. It adjust the supply according to the demand of the market. 14. 9. While a single unit can not do so. Research Facilities :A small firm can not set up the research department. So the small units combine themselves to face these problems easily. 6. Status in Market :A big firm enjoys higher status and respect then the smaller. 10. So it has also contributed to the growth of combination. Demerits or Disadvantages of Combination or Business combination . Use of Technology :The business combination can use the latest technology and new methods of production because its sources are sufficient. Transport and Communication Development Activities :It has made economic activities fast. 12. while through business combination these facilities can be enjoyed. 8. Government also imposes heavy duties to protect the domestic producers. 7. 13. To reduce the risk small industrial units combine themselves. Tariff Facilities :To compete with external firms some industrial units combine themselves. Growth of Joint Stock Companies :The growth of joint stock companies has also made possible for various industrial units to form combination. Uniform Policy :All the units adopt uniform policy due to business combination. 11.small industrial units combine themselves to hire the services of effective management. Demand and Supply Balance :Business combination is very useful in controlling the over production. So over production can not take place and prices remain stable. To Face Crises :It is very difficult for the small industrial units to face crises in the days of inflation and deflation. Government also provide protection and tarrif facilities. Economic Instability :In case of economic and political instability there is chance of loss in every moment. It regularizes the business avtivities of all the units.
4. 5. National Interest Ignored :Generally the combinations ignore the national interest and they involved in such activities which are against the national interest. 9. Changes of Friction :The chances of friction among directors and officers are bright. Not Acceptable :Combination is disliked by the people. which increases the cost of production. Over Capitalization :There is always a danger of over capitalization in the combination. Costly Management :A combination hires costly management. 8. creditors and shareholders. Advantages or Merits of Combination or Business combination . Due to this business may suffer a loss. It is harmful for the combination. Concentration of Wealth :It concentrates the wealth in few hands and divides the society into two classes rich and poor. 2. They quarrel with each other for their own interest. 3.Disadvantages of Business Combination :Following are important disadvantages of combination : 1. No Personal Contact :It is not possible to maintain direct contact between employees. Creation of Monopoly :It creates monopoly which is harmful for the public. 7. Misuse of Funds :The directors of the company enjoy unlimited power and misuse the capital. it is not acceptable. 6.
and distribution expenses reduce due to combination. Use of Modern Technology :A combination is capable to use the latest inventions and new methods of production. Research Work :A combination is able to spend money on research work which is very important for the business. 7. 6. Saving in Expenses :Administrative production. 4. The members combine their resources to conduct large size business.Advantages of Business Combination :The advantages of combination are controversial because creation of monopoly and elimination of competition both are considered the merits and demerits of the combination. 3. Controls Over Production :Combination is very effective to control over production. 2. Elimination of Competition :By the formation of combination unnecessary competition is eliminated and member firms eran monopoly profit. Increase in Capital :The volume of capital may be increased by the formation of combination. . So it sells the product at higher price. Experts Services :A combination is able to acquire the services of experienced specialists. This research work reduces its cost and increases its [profit. 8. Large Scale Marketing :In the market competition position is strong in bargaining. It increases the efficiency of the combination. It helps to adjust the supply according to the demand. 5. Any how following are the important merits of combination : 1. It will increase its profit.
Discuss the various Types or Kinds of Business combination Types of Business Combination :It has following four types : 1. 10. Division of Labour :The principle of division of labour is applied in combination which increases the production efficiency of combination. Diagonal Combination. 1.9. The chances of dissolution are also less than others. Under this combination from purchasing of raw material to selling of product all the stages are linked up by the units. Vertical Business Combination :When various departments large industrial units combine together under single management is called vertical combination. all the business units engaged in publishing books can make vertical combination as under : . 2.For examp0le. Circular Combination. 4. Horizontal Combination. Stability :A combination is more stable form of business as compared to the individuals units. Vertical Combination. 3.
Their combination will be called horizontal combination.Objectives or Advantages of Vertical Business Combination :1. . 3. To use improved methods of production. 4. To achieve the benefits of large scale. To supervise the management. 9. To eliminate competition. To hire the services of experts. 2. For example. Horizontal Business Combination :It is also voluntary association which two or more than two similar nature business units combined them selves under the one management. 5. To find proper market for their product. The are engaged in same activity. if four tea industrial units are at the same stage of production. To avoid over production. 8. 2. To supply the goods at lowest price. 10. To avoid over production. To supervise the management. They sell wholesale. To reduce the middleman commission. To achieve the benefits of large scale. 6. it is called horizontal combination. To minimize the cost per unit. To use improved methods of production. To earn maximum profit. 6. To minimize the Cost per unit. Objectives or Advantages of Horizontal Business Combination :1. They sell the product in the same market. 4. To supply the goods at lowest price. 7. 5. 8. To eliminate competition. 3. 9. 11. 7. To find proper market for their product. 2. To hire the services of experts.
Objects :. To earn maximum profit. 3. 4.The main object and advantage f this combination is that it makes the business unit very large and self sufficient. Example :. Diagonal Business Combination :When two or more than two business units performs subsidiary services. 11.If designing and tailoring business units are combined with the garments industry it is called diagonal combination. Circular or Mixed Business Combination :When different types of business units combine themselves under the one management it is called circular combination. Example :. Objects :. Classify the various Forms of Business Combinations and explain its objectives or Advantages .10. To reduce the middleman commission.If a cloth industry combining with shoes industry and sugar industry is an example of mixed combination.The main object of mixed combination is to secure the benefits of administrative ability through common management. if they combine themselves under the main industry it is called diagonal combination.
It collects and provides the information's regarding trade and industry to the members. It also encourages the friendly relations among the members. 3. 3. Every trade association elects its office bearers to look after the interest of the members. 2. Its management is conducted by the elected office bearers. It promotes the trade and commerce activities. TRADE ASSOCIATION :It is a voluntary association of industrialists traders and merchants who belong to the same nature of business. This fund is used to obtain the common objectives. This association also provides necessary information's to the rubbers about the business. It protects the interest of the members. It settles the disputes among the members.Forms of Business Combination :Following are the important forms of combination : 1. The trade association main objective is to protect the economic interests of the members. iron merchants and leather trading association are the examples of Trade Association. 2. Govt. Each member contributes the fund. Advantages of Chamber of Commerce :1. POOL :Pool is an agreement which is made by the members. Members of the pool produce similar . 4. CHAMBER OF COMMERCE :It is an association of industrialists traders and businessman who belongs to the particular city or district. Wood merchants. Trade associations also establishes its common fund. has also right to appoint some members while preparing the commercial and fiscal policy government considers the recommendations of the chambers of commerce.
Under this system firms do not loose their identity. The pool divides the profit according to their agreed share. It can be easily formed. It increases the profit of the firms. CARTEL or SYNDICATE :It is formed by a number of producers engaged in the same industry. It controls the prices of the product. 3. The difference between selling price and cost is transferred to the account of the Central body of the pool. Pool members often disregard the pool agreement. Customers generally dislike the pool. All the member firms transfer their sources of rights to the pool. 3. The members of the pool are allowed to sell the product at higher price fixed by the central body of the pool. Advantages of Cartel :- . Each firm sells its product only in the allocated area. 3. 6. 2. 4. It divides the market and distributes profit among the members. It saves the expenditures of the firms. 2. 4. There is no fear of over production. 2. The Cartel secures monopoly and sells the product at different prices in different countries. Pool has three kinds : 1. The efficient firms can not produce the goods according to their capacity. Production pool or out put pool :. Income or profit pool :.When quota of production is fixed for each of the member firm in order to avoid over production it is called production pool. The Cartel is responsible to dispose of the product of the firms in the market. It reduces competition. 4. The Cartel only performs the duty of distribution of product it does not operate for earning of profit for itself.Cartel is an association of independent producers. 5. The Cartel sells the product on the behalf of the firms and distributes the profit according to their supply. Market pool :.product and they want to regularize the price of the product.The member of the pool fix the base price which is equal the cost of production. Advantages of Pool :1.According to this method market is divided among the member firms. The pooling of market may be local national or international. Cartel can not interfere in the internal affairs of the firms. Pool works for a limited period. The management of the pool controls the price and product of the pool members. They make an agreement to sell their product jointly through the joint stock company called cartel. Disadvantages of the Pool :1. The pool eliminates the completion. Note :.
7. The government of various countries declared it illegal because it is harmful for the public. Disadvantages of Cartel :1. 4. 5. The members can earn monopoly profit. Trust produces the goods of standard quality. Trust financial conditions is strong. New firms also enter into the market due ti high rate of profit. 6. Publicity expenditure of the firms is saved. Advantages of Trust :1. 4. 5. 2. Trust uses the latest machinery and reduces the cost. . TRUST :Trust is a that kind of business organization in which the stock holders transfer their stock or shares to the Board of Trustees and receive the trust certificates in exchange. The over all policies are framed by the Board of Trustees. 5. 5. Member of the firms can not maintain uniform standard of the goods. 3. 6. 3. 2. 5. The agreement which takes place is called trust agreement. 4. 7. There is also a danger of over investment in the trust. 2. The consumer suffers a loss due to Trust monopoly. Board issues the certificates against the stock. Trust is in a better position to control the out put and market. Non members of the Cartel Compete with the Cartel. 5. 4. It is more stable than pool. The member do not lose their identity. Wealth goes in few hands. 7. There is no danger of over production. 3. Essential or Conditions for Trust :1. The bargaining power of the Cartel is better as compared to others. The process of trust formation is very difficult. 3. 6. Trust avails the economies of large scale. Disadvantages of Trust :1. Two or more than two companies can form trust. The members of the companies do not lose their identity. 4. 2.1. Member companies receive profit according the certificates obtained. The inefficient firm may save itself from competition. The customers are charged higher prices. All the members transfer their stock to the Board of Trustees. Selling of the product is economical. Board of Trustees is formed. 3. Trust has effective control on the member firms. 2. Wealth goes in few hands.
After amalgamation each company loses. The ownership and control of the combined concerns may be undertaken by a single agency.Rings :. New combination company generally take over all the assets and obligations of old companies. This control over the combining firm can be exercised by a number of methods which in turn give rise to various forms of combinations. MERGER :When a joint stock company absorbs one or more than one company is called merger. Main purpose of a new company is to enlarge a business to obtain the benefits of large scale. Producers combine themselves to restrict out put and earn maximum profit. It eliminate the competition and obtains the monopoly profit it reduces the cost and obtain the tax advantages. Forms of combination . In the process of combination. This control may either be temporary or permanent. for all or only for some purposes. Define the Amalgamation and Merger AMALGAMATION :Amalgamation comes into existence when two or more than two established joint stock companies combine themselves into a large one. Any member if violates the agreement he is fined by the ring. Supply of the firm is controlled by the ring. It is organized to exploit the consumers.It is organized to secure the monetary gains. of greater or lesser completeness is exercised over a number of firms which either is operating in competition or independently. the constituted firm pursues some common objectives or goals. its separate entity. two or more units engage in similar business or in different related process or sages of the same business join with a view to carry on their activities or shape or shape their polices on common or coordinated basis for mutual benefit or maximum profits. 0 6Share External expansion refers to business combination where two or more concerns combines and expand their business activities. The combination may be among competing units or units engaged in different processes. Each firm which is absorbed loses its identity. Business combination is a method of economic organization by which a common control. After combination. All the members production quota is fixed and no one can produce more than his quota.
Merger or amalgamation through consolidation. Merger is a financial tool that is used for enhancing long-term profitability by expanding their operations. sometimes. go into liquidation and form a new company with a different entity. In this form of merge.g. go into a new company. As a result of the absorption. Such actions are commonly voluntary and involve stock swap or cash payment to the target. absorption. all the existing companies. in some cases. E. Hop Prudhommee and co. A consolidation is a combination of two or more companies into a new company. It may be in the form of one or more companies being merged into an existing company or a new company may be formed to merge two or more existing companies. Merger or Amalgamation In business or economics a merger is a combination of two companies into one larger company. takeover. In this form of merger. it is a case of consolidation . which combine. 1961 of India uses the term µamalgamation¶ for merger. the term amalgamation includes µabsorption¶. 1. consolidation. and they merge together to form a new company called AB Ltd. there are two companies called A ltd. Absorption. in a broader sense even when there are legal distinctions between the kinds of combinations. (RPPL) by Reliance Industries Ltd. Absorption of Reliance Polyproplene Ltd.There is some disagreement on the precise meaning of various terms relating to the forms of business combinations. these terms are used interchangeably. 1956. A merger can resemble a takeover but result in a new company name (often combining the names of the original companies) and in new branding. y y Merger or amalgamation through absorption. Consolidation. In SS Somayajula v. merger. all the existing companies. According to companies act. The learned judge refers to amalgamation as ³a state of things under which either two companies are joined so as to form a third entity or one is absorbed into or blend with another´. The income tax Act. which combine. A combination of two or more companies into an existing company is known as µabsorption¶. and B Ltd. or C Ltd. Types of Mergers . The entity of the existing company is lost and their assets and liabilities are taking over by the new corporation or company. The assets of old concern are sold to a new concern and their management and control also passes into the hands of the new concern. viz. Stock swap is often used as it allows the shareholders of the two companies to share the risk involved in the deal. ltd. terming the combination a ³merger´ rather than an acquisition is done purely for political or marketing reasons. amalgamation. In absorption all companies expect one go into liquidation and lose their separate identities. acquisition. The term consolidation is also sometimes used as amalgamation. Mergers occur when the merging companies have their mutual consent.eg. the RPPL was liquidated and its shareholders were offered 20 shares of RIL for every 100 shares of RPPL held by them. etc.
Reverse take-over: When a smaller firm will acquire management control of a larger or longer established company and keep its name for the combined entity. Conglomeration ± Two companies that have no common business areas where two merging firms are in the same general industry. It is an act of acquiring control over management of other companies.: an ice cream maker merges with the dairy farm that they previously purchased milk from. From a legal point of view.From the perspective of business structures. Example: Prudential¶s acquisition of Bache & Company. In the pure sense of the term. Here are a few types.g. agree to go forward as a single new company rather than remain separately owned and operated. Distinction between Mergers and Acquisitions Although they are often uttered in the same breath and used as though they were synonymous. two transport companies operating on the same route-the merger in all these cases will be horizontal merger.´ Both companies¶ stocks are surrendered and new company stock is issued in its place. 2. The idea behind this type of merger is to avoid competition between the units. the buyer ³swallows´ the business and the buyer¶s stock continues to be traded. (e. This kind of action is more precisely referred to as a ³merger of equals. such as a merger between a bank and a leasing company. also known as a takeover or a buyout. In the former case. . a merger happens when two firms. When one company takes over another and clearly established itself as the new owner.g a cone supplier merging with an ice cream maker).g. the terms merger and acquisition mean slightly different things.: an ice cream maker in the United States merges with an ice cream maker in Canada) Product-extension merger ± Two companies selling different but related products in the same market (e. now. This is known as a reverse takeover. the milk is µfree¶) Market-extension merger ± Two companies that sell the same products in different markets (e. (e. often of about the same size. the takeover target is unwilling to be bought or the target¶s board has no prior knowledge of the offer. but they have no mutual buyer/customer or supplier relationship. Vertical merger ± A customer and company or a supplier and company. in the latter case. the purchase is called an acquisition. is the buying of one company by another.g. An acquisition may be friendly or hostile.: two manufacturers¶ of same type of cloth. the target company ceases to exist. Acquisitions or Take-Over An acquisition. the companies cooperate in negotiations. Acquisition usually refers to a purchase of a smaller firm by a larger one. there is a whole host of different mergers. distinguished by the relationship between the two companies that are merging: y y y y y Horizontal merger ± Two companies that are in direct competition and share similar product lines and markets. join together it is known as a horizontal merger.
Regardless of their category or structure. The success of a merger or acquisition depends on whether this synergy is achieved. all mergers and acquisitions have one common goal: they are all meant to create synergy that makes the value of the combined companies greater than the sum of the two parts. .
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