Corporate Restructuring is process of arranging the business activities of company as a whole so as to achieve predetermined activities. It is process of redesigning one or more aspects. Corporate Restructuring is act as revival process to revive the company through changes. Restructuring plan designed to get business back on track and make it profitable
organic or inorganic. Organic corporate restructuring means growth of corporate through internal strategies like issue share. Inorganic corporate restructuring is an external strategy like Merger, Amalgamation, Takeover etc.
Benefits of Corporate Restructuring:
- It helps the company for development of core competencies.
- The restructuring also helps to access better technology.
- Through the corporate restructuring company can obtain tax benefits under Income Tax Act, 1961.
- It also helps to enhance shareholder value.
- Corporate restructuring used to change financial strategy, this strategy helps company to reduce finance burden.
- Corporate restructuring also helps in improving economic scale.
- Through restructuring company help to become globally competitive. It improving competitive position of individual business and maximizing its contribution.
Motive of Corporate Restructuring:
As corporate restructuring is wider concept it has financial as well as other motives. List of the some motives are as follows:
- To reduce risk
- Obtain tax benefits
- Revive a sick company
- To expand marketing and management capabilities
- Increase operating efficiency
- Improve access to financial market
- To provide synergistic benefits.
Types of Corporate Restructuring:
- Financial Restructuring:
Financial restructuring is process of restructuring or rearranging financial structure. It also helps company to revive situation of financial distress without going into liquidation. Financial restructuring can be done due to compulsion or voluntary basis.
Two components of financial restructuring:
- Debt Restructuring:
It is process of rearranging debt structure. It is more commonly used as a financial restructure of company as compared to equity restructuring.
- Equity Restructuring:
It is process of rearranging equity capital. It includes reorganizing of share capital of company as well as reserve.
- Organizational Restructuring:
Organizational Restructuring means change in the organizational structure of a company, like reducing its level of the hierarchy, redesigning the job positions, and changing the reporting relationships, upgrading the work positions, scaling back the representatives.
Aspects to be consider for corporate restructuring:
- Valuation and funding
- Accounting aspects
- Taxation aspect
- Legal and procedural issues
- Competition aspect
- Human and cultural synergies etc.
Reasons of failure corporate restructuring:
- Cultural and social differences
- Incomplete and inadequate due diligence
- Poorly managed integration
- Poor strategic fit
- Organizational resistance etc.
With the proper planning and due diligence company can minimize chances of failure of corporate restructuring.
Corporate Restructuring Strategies:
- Merger and amalgamation:
Company is acquired or absorbed into another business entity or combine with another business entity or existing entity to form new entity.
E.g. Global Payment and EVO Payment, Amazon and iRobot.
Acquirer company individually or along with person acting in concern acquire voting rights or control in management of target company.
- Joint Venture:
Joint venture is an agreement by two or more entities to accomplish specified business objective. It created for specific purpose it will dissolved after achieving object.
E.g. HUL, Wipro, AirAsia.
Disinvestment means to sell out or liquidate assets or subsidiary of corporate entity.
- Slump sale:
Entity transfer one or more undertaking for lump sum consideration without assigning value of individual assets and liability
E.g. Piramal Healthcare.
Corporate Restructuring is voluntary but it is necessary to eliminate financial crisis and enhance company performance. Corporate restructuring motive to reduce risk or cost, to increase efficiency and profitability. If you have doubt regarding this topic then contact company suggestion