Corporate restructuring is the process of reorganizing the ownership, legal, operating or any other structures of the company. It may involve expansion or contraction of the operations of the business.
There are various types of corporate restructuring such as mergers, consolidations and leveraged buyouts (LBOs). Successfully restructured organization should result in an increase of the owners’ wealth and more effective operations.
Restructuring can be necessary in various situations. Some of the reasons are as follows.
- If company was the target of a leveraged buyout than it is likely to be restructured by the new owner and sold for a profit after the restructuring is successfully completed.
- Restructuring can also be necessary in situations when the organization became too large, to the point that the structure established for the organization earlier can no longer support the operations of the organization.
- If an organization grows to be too large for its current structure, restructuring may allow the organization to make its operations more efficient. For example, some parts of the organization can be converted into subsidiaries to obtain tax advantages and to ensure more effective management of the operations.
- Another situation which may require restructuring is an organization struggling to survive. Such a situation can occur for various reasons such as the downturn in the economy, market entry of an unexpectedly strong competitor or revolutionary changes in technology which make some of the business’s product offerings obsolete. Contraction of the operations of such an organization may be necessary to ensure that the business can continue its existence and start rebuilding itself from the size it can currently sustain.
There are of course many more reasons why an organisation can be restructured. In general, restructuring implies the organization will continue its operations in one way or another.