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Corporate Restructuring – All You Need To Know

corporate restructuring

A change in the company’s structure and operations is known as Corporate Restructuring. It frequently happens when an organization faces serious problems and severe financial concerns. Strategies to reduce the company’s size are required for the reorganization.

Benefits of Corporate Restructuring

  • The restructuring develops the company’s core strengths.
  • Facilitates access to superior technology.
  • The Income Tax Act (1961) provides tax benefits for corporate reorganization.
  • Increasing shareholder value
  • Helps to lower financial burden by changing financial strategy.
  • Contributes to a larger economy.
  • It helps a company become more competitive on a global scale. It boosts each company’s ability and maximizes its contribution.

Purpose of Corporate Restructuring

  • It is reorganizing a company’s operations to improve productivity and profitability. Restructuring is a strategy for altering the organizational structure to help the company reach its strategic objectives. 
  • The strategy must be based on the objective or corporate goals. The sole purpose of every restructuring effort is to eliminate the disadvantages and combine the positives. 
  • The claim above is accurate in every way. The following are the various requirements for starting a corporate restructuring exercise:

(a)Emphasize core competencies, operational synergy, cost containment, and effective managerial resource allocation;

(b) Utilize infrastructure and resources in a balanced manner;

(c) Scale economies through growth to take advantage of both domestic and foreign markets;

(d) A sick unit’s regeneration and rehabilitation by offsetting its losses with a healthy company’s revenues;

(e) Gaining access to ongoing scientific research and technological advancements as well as a steady supply of raw materials;

(f) Capital restructuring using an appropriate ratio of equity and loan funds to lower servicing costs and boost return on capital utilized

(g) Adapt the fundamental changes by information technology to enhance company performance and gain a competitive advantage.

Types of Corporate Restructuring

  • Financial – It refers to reorganizing or changing the economic structure. Additionally, it aids in reviving the company’s financial predicament without forcing it into liquidation. 
  • Organizational – It refers to changes made to a firm’s organization, such as lowering the hierarchy level, redefining job roles and altering reporting structures, upgrading work positions, and reducing the number of representatives.

Characteristics of Corporate Restructuring

  • Staff reduction Layoffs (by shutting down or auctioning off the unfruitful areas )
  • Modifications to corporate management.
  • Throwing away unused resources, such as brands and intellectual rights.
  • Transferring its responsibilities to an outsider who is becoming increasingly productive, such as a specialized
  • Assistance with financial issues.
  • Relocating duties, such as assembly activities, to reduce cost-intensive locations.
  • Renovating various capacities, such as promotion, sales, and dissemination.
  • Renegotiating employment contracts to cut costs.
  • Rearranging or renegotiating the contract terms to reduce the intrigue installments.
  • Using every available advertising to reposition the company in the eyes of its clients

Various Aspects of Corporate Restructuring 

  • Legal and procedural issues
  • Accounting aspects
  • Human and Cultural synergies
  • Valuation and Funding
  • Taxation and Stamp duty aspects
  • Competition aspects, etc.

Reason For Failure of Corporate Restructuring

Adaptation of the Strategy

A struggling company’s management seeks to increase organizational efficiency by eliminating divisions that do not support the primary objective of the business. To better promote these assets to clients, the corporation wants to focus on its key strategies.

Lack of Revenue

It cannot be sufficiently profitable to balance the company’s capital outlays and result in a financial loss. Poor division performance could result from management’s ill-advised decision to create the division or a decline in profitability brought on by more significant service costs and growing consumer demands.

Synergy in the reverse

This term is comparable to the M&A synergy principles, which state that a combined firm is worth more than its constituent parts. Depending on the reverse synergy, the value of the separate components can exceed the value of the whole. It is a typical justification for asset division. Instead of owning a division, the company may break it out into a third party to unlock more excellent value.

Required Cash Flow

A division sale will contribute to the company’s significant cash inflow. Selling an asset is a quick way to raise money and pay off debt if the company has financial difficulties.

Strategies For Corporate Restructuring

Merger: This is when at least two company components come together through an amalgamation, ingestion, or framing of another corporation. The trading of safeguards between the procuring and the objective organization frequently results in the merger of at least two commercial entities.

Turnaround Merger: Through this process, unlisted open companies can become listed available organizations without choosing to go public (IPO) (Initial Public offer). In this process, the privately owned company gains a more significant percentage of stock in the public company bearing its name.

Demerger: In this corporate rebuilding process, at least two organizations are merged into one to benefit from the synergistic energy that results from such a merger.

Takeover/Acquisition: In this strategy, the acquiring organization usually manages the target organization. It is also known as Acquisition.

Disinvestment: Divestiture refers to a corporate element’s sale or exchange of a benefit or auxiliary.

Joint Venture (JV): Using this process, a substance is created by at least two organizations to collaborate on financial acts. The final product is referred to as the “Joint Venture.” Both parties agree to share the organization’s costs, revenues, and management and participate in the amount necessary to create the other substance.

Slump Sale: Under a Slump Sale, a venture is sold for thought, regardless of the person’s estimates of the venture’s benefits or liabilities, or in other words, without any consideration of the worth of the venture’s specific assets and liabilities.

Strategic Alliance: In this method, at least two parties agree to collaborate to achieve specific goals while operating as free associations.


The company’s management makes an effort to take all necessary actions to keep the business running through corporate restructuring. And if the worst happens and the corporation is forced to split into pieces because of financial issues, it is still hoped that the divested sections will function well enough for the buyer to absorb the struggling company and turn it around.

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