[amp_mcq option1=”external reconstruction” option2=”liquidation” option3=”absorption” option4=”amalgamation” correct=”option3″]
The correct answer is: C. absorption
Absorption is a type of merger in which one company acquires another company and the acquired company ceases to exist as a separate legal entity. The acquiring company assumes all of the assets and liabilities of the acquired company, and the shareholders of the acquired company receive cash or shares in the acquiring company.
Liquidation is the process of winding up a company and distributing its assets to its creditors and shareholders. A company may be liquidated voluntarily by its shareholders or directors, or involuntarily by a court order.
External reconstruction is a type of restructuring in which a company’s assets and liabilities are transferred to a new company, and the old company is dissolved. This type of restructuring is often used to avoid bankruptcy.
Amalgamation is a type of merger in which two or more companies combine to form a new company. The new company is a legal entity separate from the original companies, and the shareholders of the original companies become shareholders in the new company.
In the case of absorption, the acquiring company is the one that survives and the acquired company ceases to exist. The acquiring company assumes all of the assets and liabilities of the acquired company, and the shareholders of the acquired company receive cash or shares in the acquiring company.