Corporate restructuring or business restructuring has gained popularity among large and small companies around the world. It has become an ideal strategy to meet the expansion or contraction needs of an organization.
Organizations planning to expand their base turn to mergers, acquisitions, mergers, asset purchases, joint ventures, and acquisitions. They are all different forms of corporate restructuring that bring together the resources of two companies under one umbrella. They are considered synergistic in nature because they lead to greater benefits from economies of scale, the use of tax shelters, the creation of a vast pool of assets, and the establishment of more efficient management.
Alternatively, contracting the business through divestitures, spin-offs and spin-offs are other forms of corporate restructuring. In this case, the goal is to eliminate a loss-making strategic business unit to reduce business losses. These forms are also preferred when organizations are striving for greater operational efficiency and want to focus more on areas that have immense profit-generating potential.
A divestiture involves the sale of a division of one organization to another company. It is a contraction move from the seller’s point of view. In a spin-off, a business unit is split into a separate company that has its own legal identity and a common seal. In a spiltup, a single organization, which is a parent company, is divided into two or more independent organizations.
A popular form of corporate restructuring is to raise funds from the general public through the equity or debt route. This helps the company raise large amounts of funds that would otherwise be impossible through the private route. In this, the company presents an initial public offering that invites people to apply for its prescribed minimum number of shares with a fixed par value. In addition, the status of the company changes from limited private to limited public after completing a long list of legal procedures.
Alternatively, a public company going private is also a form of corporate restructuring. It is commonly known as privatization. In many developing countries, the public sector was established to serve strategically important industries such as steel, oil, and defense. Over time, inefficiencies such as red tape and red tape crept into the system, causing ongoing financial losses. Therefore, the government of these countries began to transfer ownership of their businesses to private hands.
The current business scenario has given rise to various types of business combinations and corporate restructurings that are carried out with the key objective of achieving a competitive advantage in the market.
