Reasons for Corporate Restructuring

1. Lack of Profits: The main reason for the corporate restructuring is that the company is unable to make enough profits, which is required for the survival of the company. Sometimes, the management makes wrong decisions regarding the new product or new division, which leads to poor performance, or with the change in customer needs, there is a decline in the profit level, which can lead to restructuring.

2. Cash Flow Requirement: Generally, the sale of an unproductive project can result in a significant cash inflow for the company. If the company is facing difficulty in getting finance, it can dispose of its assets to raise money and reduce debt.

3. Changing Strategy: Sometimes, the struggling organisation tries to improve its performance by reducing divisions and subsidiaries that are inconsistent with the main strategy of the company. These divisions and subsidiaries can not strategically fit into the long-term vision of the company. Thus, the company must focus on the core functions and dispose of its assets to buyers.

4. Long-Term Growth: The restructuring helps the company achieve long-term success by positioning itself by expanding its product range, accessing new markets, or acquiring new technology.

5. Improves Financial Performance: Restructuring helps the company improve its financial performance by decreasing costs, improving revenue, or enhancing profitability.

Corporate Restructuring: Meaning, Types, Reason and Strategies

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What is Corporate Restructuring?

The process of rearranging a company’s management, finances, and activities to increase the business’s efficacy and efficiency is known as Corporate Restructuring. A company can cut expenses, improve productivity, and enhance the level of quality of its goods and services by making changes in this area. In addition, it can help a business in meeting the demands of its customers and investors more effectively. Company Restructuring may also result in the sale of underperforming or unprofitable company units. In cases, when a business is having financial difficulties and needs to restructure its debts with its creditors, corporate restructuring acts as a last resort to maintain the solvency of the business. The process involves selling off non-essential assets and restructuring the company’s debt to continue running the business. The concerned company can consider debt financing, operations downsizing, or selling a portion of the company to prospective investors....

Types of Corporate Restructuring

1. Financial Restructuring:...

Reasons for Corporate Restructuring

1. Lack of Profits: The main reason for the corporate restructuring is that the company is unable to make enough profits, which is required for the survival of the company. Sometimes, the management makes wrong decisions regarding the new product or new division, which leads to poor performance, or with the change in customer needs, there is a decline in the profit level, which can lead to restructuring....

Legal Requirements for Corporate Restructuring

Several laws control the operation of mergers, acquisitions, and downsizing of business, as these are crucial to the development and expansion of the business. These activities are governed by several statutes, regulations, rules, orders, and notifications, and they are implemented by several sectoral regulators, which include the Central Government, RBI, SEBI, CCI, RoC, etc. The requirements are as follows:...

Types of Corporate Restructuring Strategies

1. Mergers: It includes merging two or more business entities by the means of absorbing, merging, or forming a new company. The merger of two or more business entities, includes the exchange of securities between the target and the acquiring company....

Conclusion

There are various methods of Corporate Restructuring, such as mergers, acquisitions, and downsizing. These methods play an important role in the development and growth of Indian markets and promote the effective functioning of businesses. External restructuring occurs through mergers and acquisitions, whereas downsizing usually represents an internal restructuring strategy that includes letting go of ineffective people. These measures are implemented by a company based on a variety of factors which include the company’s profile, stage of development, life cycle, management, objects and motives, etc. The companies must work as per legal frameworks and obtain timely approvals in compliance with industry-specific regulations to optimise the benefits of corporate restructuring. Companies should always ask for professional assistance to make sure that they follow all regulations to avoid heavy penalties for any violations of the law....

Corporate Restructuring – FAQs

Is it true that Restructuring implies layoffs?...