Corporate restructuring is the process of changing a corporation's structure, operations, or management for the purpose of making it better organized and more profitable. Through corporate restructuring, a company can systematize its business operations, boost performance and achieve the desired business objectives. This process is vital for resolving financial difficulties and disasters. Usually a specialist in financial and legal affairs is appointed for support in the negotiation processes when companies suffer financial issues.
The need to restructure a corporation is mainly due to a shift in a company's ownership structure. The factors like bankruptcy, takeovers, mergers, buyouts, lack of integration, overworked people make a difference in the company's ownership structure. A corporation will look for options like debt financing, operations downsizing or selling some of the business to potential investors when it is faced with deep financial problems.
Companies perform corporate restructuring due to several reasons. Some of them are mentioned below.
Financial restructuring is a type of corporate restructuring in which a company merges or get acquired by a different company. Here, restructuring happens as a result of a share sale or an asset sale in an acquisition. In the case of a share sale, the entire share capital of the company is acquired and in an asset sale, only a specific asset is obtained from the selling company. Financial restructuring can also happen during the Mergers and Acquisitions (M&A) process.
In organisational restructuring, there will be a change in a company's organisational structure. The changes include downsizing personnel, lowering the degree of hierarchy, redefining job positions, raising more capital, etc. This type of restructuring helps lower costs and clears the existing debt to continue with business operations. In organizational or debt restructuring, the parties forge a contract to bind the company’s debtors.
Corporate Restructuring is carried by corporations to enhance the overall business performance. Some of the benefits of corporate restructuring are:
Corporate restructuring is a highly complex task. The type of restructuring would depend on the aims and requirements of the company. The below mentioned are some of steps to be followed in a restructuring process:
Determination: In this step, the main objective of the process of corporate restructuring is determined.
Identification: Through proper research, the company’s strengths and weaknesses are identified.
Implementation: Once business's strengths and weaknesses are identified and analysed, the restructuring procedures will be implemented.
Post Analysis: Carry out a comprehensive analysis of the company’s restructuring process and its effects.
Evaluation: In the final step, the company’s performance is evaluated in a detailed manner.
