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Difficulty: MediumBusiness Combinations: Mergers, Acquisitions, Holding, and Subsidiary Companies

Apex Electronics Ltd completely buys over Omega Cables Ltd, taking total control of its assets and liabilities, resulting in the complete legal dissolution and extinction of Omega Cables Ltd as an independent corporate entity. Which type of business combination has occurred?

  1. AbsorptionAnswer
  2. B
    Holding company arrangement
  3. C
    Cartel formation
  4. D
    Commercialization

Answer

Absorption
Absorption takes place when an existing enterprise acquires another business and fully integrates its assets and liabilities, causing the target firm to lose its corporate identity and be dissolved entirely.

Step-by-Step Solution

1
Analyze the corporate transaction described in the scenario.
One company (Apex Electronics Ltd) purchases and takes over another company (Omega Cables Ltd), causing Omega Cables Ltd to cease existing as a separate legal entity.
Identifying whether the acquired company loses its separate legal existence is crucial for determining the specific combination type.
2
Distinguish between absorption, holding companies, cartels, and commercialization.
Absorption involves the complete takeover and legal extinction of the absorbed company, whereas holding arrangements preserve separate legal identities.
This legal distinction directly defines absorption in business combinations.

Key Concept

Absorption in Business Combinations
Estimated Time:1m 0s
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Topics

Business Combinations: Mergers, Acquisitions, Holding, and Subsidiary Companies

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