What is the difference between Consolidation, Conversion, Domestication and Merger?

Abstract

Few business terminologies are an integral part of the corporate world. Matters such as how to consolidate or what is consolidation are some frequent aspects that often emerge in business and are important to understand in order to operate any particular business. Basic understanding as well as differences among all are discussed in the article below. 

Understanding

1. Consolidation

Consolidation in business means the combination of two or more corporations making it a single and new entity or corporation.

2. Merger

Merger in business terms means the combination of two or more corporations and the subsequent entity is one of the constituent entities as surviving corporation.

3. Conversion

Conversions happen for a single corporation or entity when it changes its type or nature of business and/or it moves to a different state and has a different set of laws applied to them.

4. Domestication

Domestication of corporation means movement of a corporation from one state to another and typically ceasing its entire operations in the existing state.

How to handle Registration, Accounting and Taxation of a consolidating entity?

• Since the resulting corporation is a new entity, new registration applies to it and the consolidated company will have to go through the entire legal registration procedure.

• In Accounting terms, the consolidation of corporations will be considered as aggregation of financial statements involving each constituent of amalgamation.

• For taxation, the consolidated corporation will now be treated as one.

How to handle Registration, Accounting and Taxation of a converting entity?

• The registration of a conversion corporation involves steps like depositing an amount for funds and then applying for amending of MoI.

• The accounting consideration depends if let’s say a single member corporation is converting into a multi-member corporation. In this case, the single owner will sell half interest to other or the upcoming owner is willing to share property on a half interest basis.

• How to file taxes is again dependent of the kind of conversion taking place either from single ownership to multiple or vice versa.

How to handle Registration, Accounting and Taxation of a domesticating entity?

• While registering, this will also be called redomicilation and for that you will first have to get a certificate from the original state on good standing.
• For accounting tax purposes in a domestication setup, there will be two trustees playing their part – one would be an onshore trustee and the other an offshore. It is always better to get a private letter ruling issued to save yourself from unnecessary taxes and processes. 

How to handle Registration, Accounting and Taxation of a merging entity?

• The question how is merger different can be explained in a way that to register the company within a 30-day period so that, if interested investor may resell their shares lawfully.

• The accounting of mergers is done using pooling of interest method where Balance Sheets of the two or more companies and considered at book value.

• In acquisitions and mergers, there can either be taxable transactions or non-taxable transactions depending on the non-equity considerations.