Different forms of corporate restructuring

Corporate restructuring or corporate 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 resort to amalgamations, acquisitions, mergers, asset purchases, joint ventures, and acquisitions. They are all different forms of corporate restructuring that bring together the resources of two businesses under one umbrella. They are considered synergistic in nature because they lead to greater benefits from the economy of scale, the use of tax havens, the creation of a vast set of assets and the establishment of more efficient management.

Alternatively, contracting the business through divestments, divisions and separations are other forms of corporate restructuring. Here the goal is to eliminate a losing strategic business unit to reduce business losses. Such forms are also preferable when organizations are striving for greater operational efficiency and want to focus more on areas that have immense profit-generating potential.

A divestment involves the sale of a division of one organization to another company. It is a movement of contraction from the seller's point of view. In a spin-off, a business unit is divided into a separate company that has its own legal identity and a common seal. In a division, 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 via the private route. In this, the company presents an initial public offering that invites people to request their prescribed minimum number of shares with a fixed par value. Additionally, the company's status changes from limited private to limited public after completing a long list of legal formalities.

Alternatively, a public company that becomes private is also a form of corporate Chief Restructuring Officer. It is commonly known as privatization. In many developing countries, the public sector was established to deal with strategically important industries such as steel, oil, and defense. Over time, inefficiencies such as bureaucracy and red carpet dipped into the system, causing continued financial losses. Therefore, the government in these countries began to transfer ownership of their businesses to private hands.