Business reorganization or corporate reorganization has gained popularity among large and small business houses around the world. It has become an ideal strategy to meet an organization’s expansion or contraction needs.
Organizations planning to expand their base resort through mergers, acquisitions, mergers, asset purchases, joint ventures and takeovers. They are all different forms of corporate recovery that combine the resources of two companies under one roof. They are considered synergistic as they lead to greater benefits of economies of scale, the use of tax breaks, the creation of a vast pool of wealth and the establishment of more efficient management.
Alternatively, contracting the business through divestitures, spin-offs and demergers are other forms of corporate restructuring. Here the focus is on removing a loss-making strategic business unit to limit business losses. Such avenues are also preferred when organizations strive for greater operational efficiencies and want to focus more on areas that have immense profit potential.
A divestment involves the sale of a division of an organization to another company. From the seller’s point of view, it is a contraction move. In the case of a spin-off, a business area is spun off into an independent company with its own legal personality and a common seal. In a split up, a single organization that is a parent company is split into two or more independent organizations.
A popular form of corporate restructuring is raising funds from the public through the equity or debt route. This helps the company raise large amounts of money that would otherwise not be possible privately. The company invites you to subscribe to the prescribed minimum number of shares with a fixed par value as part of an IPO. In addition, the status of the company changes from a limited liability company to a public company after completing a long list of legal formalities.
Alternatively, the privatization of a public company is also a form of corporate restructuring. This is commonly referred to as privatization. In many developing countries, the public sector was created to take care of industries of strategic importance such as steel, oil and defense. Over time, inefficiencies such as bureaucracy and bureaucracy have crept into the system, resulting in continuous financial losses. Therefore, the governments of these countries began transferring ownership of their companies into private hands.
The current business scenario has spawned various types of business mergers and corporate reorganizations that are being carried out with the main aim of gaining a competitive advantage in the market.