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Forms of Business Combinations: Definition, Types, Pools Explained!

Hello, Forms of Business Combinations. A business combination is a transaction in which the acquirer gains control of another business (acquaintance). Business combinations are a common way for companies to grow in size rather than organic (internal) activities. Let’s throw light on its 3 categories.

Category Forms of Combinations:

1. Trade Associations:

A trade union then comes into existence. And when business units are engaged in a particular trade or industry or in closely related trades, which come together to promote their economic and commercial interests. Such an association is organized on a non-profit basis. And its meetings are largely used to discuss matters affecting the general interests of members such as raw material problems, labor, tax-laws, etc. Most trade unions are organized on a local or regional basis. A trade association is the worst form of cohesion and does not interfere with the internal management of a member entity.

2. Chambers of Commerce

Chambers of Commerce are voluntary associations of individuals associated with commerce and industry. His membership includes businessman, broker, banker, industrialist, financier, etc. The Chambers of Commerce are formed in the same way as associations, with the ultimate aim of promoting and protecting the interests of the business community. But they differ from trade associations in that they do not restrict their interests to only one particular trade or industry; but businesses in a particular region, country, or even the world stand for the community.

The Chamber of Commerce serves as a spokesperson for the business community and suggests to the government about legislation that would promote trade and industry. The constitution and structure of the Chambers of Commerce vary. From one country to another. In most countries, they are conducted voluntarily by businessmen; although the government maintains close contact with them.

3. Informal Agreements

Informal agreements are types of business combinations. Which may be made to regulate the production or to divide markets or to determine prices, etc. Such agreements require the surrender of certain freedoms by the assembling units; however, ownership and control of combination units are not affected.

Informal agreements between commercial magnets are often concluded. In secret social functions such as dinners or meetings of trade organizations, etc., these agreements are only understood between the parties, and o written documents are prepared. As such they mainly depend on the respect and honesty of the members; they are known as the Gentleman Agreement.

Important Types of Pools:

Output Pools: Under these pools, the current demand for the product of the industry is estimated; and quotas of output for various member units are fixed. Member units are expected to produce only up-to the quota and sell their products at a price determined by the pooling association.

Traffic Pools: Such pools are formed by shipping companies, airlines, railway companies, and road transport agencies; with the basic objective to limit competition through a division of the area of operation.

Market Pools: These pools are formed with the objective of ensuring a certain demand for each member. For this purpose, the entire market is divided among the members in any of these three ways by customers, or by-products or by territories.

Income and Profit Pools: In these pools, members of the pooling association are required to deposit a very high percentage (say 80%) of the gross receipts in the common pool for redistribution among members on an agreed basis.

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