Question

What are the advantages and disadvantages of business combination?

Answer 1

Business Combination is the combination or two or more existing business entities. There are advantages as well as disadvantages for the same.

Advantages of Business Combination:

1. There may be tax benefits on business combinations.

2. The capital can be increased by combining the two existing companies without the need to raise further capital.

3. The business efficiency can be increased if the business entities involved in combination are more efficient.

4. Production might increase and the relations with the suppliers may get improved because of the combination.

5. If the existing business units are competitors, the competition may be eliminated leading to a much strengthened business.

Disadvantages of Business Combination:

1. There might be protests from employees of the organizations.

2. If two big entities combine into a new entity, it may pose a threat to competition in the industry leading to an emergent monopoly which is against the healthy competition in the industry.

3. Managing the new entity would be difficult.

4. Goodwill of the new entity might be differed or it might even be degraded if the combination is not a healthy one.

Hope it is helpful!!