Corporate Restructuring
Corporate restructuring is the process through which a corporate entity modifies the structure of a firm’s business portfolio to increase profitability. It entails implementing substantial structural changes to remove bottlenecks and other issues and boost the organization’s overall performance.
Corporate financial restructuring, also known as holding structure change, and business restructuring are included in consultancy services for corporate restructuring. The existing structure, which would have developed over time as the company grew and the promoters kept venturing into new commercial operations within the group, must be simplified by making modifications to the holding structure. The structure becomes somewhat obsolete over time and fails to withstand the test of time due to the constantly evolving global environment, the frequent introduction of new laws and policies, and the dynamic nature of the business world.
Stakeholder analysis is done in order to understand the long- and short-term goals of the entity’s business vision and plans, segregation versus consolidation of assets, the current tax situation and stakeholder concerns, goals that led to the current business structure, and lament with the current structure.
In order to fully comprehend the structure in terms of the shareholding pattern, the jurisdiction for the registration of existing business entities, and those companies’ advantages and limits, structure analysis is also carried out. Control and management, risk sharing among various company entities, historical fund flows, and SWOT analysis of the current organisation are all included.
The holding structure must be kept as straightforward as possible to get the greatest benefits while abiding by the law. When this holding structure is made simpler, there is less compliance and less transfer price. A merger, demerger, reverse merger, lump sale, disinvestment, acquisition, joint venture, or strategic alliance can result in a new holding structure. Any of the aforementioned transactions require a thorough understanding of company and tax rules. It is necessary to perform company valuation, which includes valuing the core enterprise as well as the fixed assets and the land. Stamp duty incidents and funding requirements need to be carefully examined.
Business restructuring is done to restructure the various businesses that different corporations have operated over the years as they have grown and developed into lucrative enterprises. It’s critical to comprehend the rationale for the introduction of each business line within a given organisation. There are a number of questions that need to be addressed, such as the promoters’ motivation for doing it, whether they simply introduced it because they thought it would be profitable and that starting a new business to implement the new business idea would be challenging, or whether the existing company had the synergies to take on the new business, etc.
The first step in company restructuring is to identify the group’s various business lines. Based on the nature of the various businesses, which include the business model, risk associated with client allocation, types of risks, revenue and cost risk, and market risk, as well as SWOT analysis, industry forecasts for the various businesses, constraints brought on by the current organisational structure, and interdependencies and inter-company transactions with other group companies, these various businesses need to be divided into various categories.
Identification and adoption of the principles for corporate restructuring, prioritisation of those principles for restructuring, development of workable structural possibilities, evaluation of structures on various criteria, and selection of a structure are all included in restructuring recommendations.
Our corporate restructuring experts assist you in navigating the complexity of a restructuring exercise by creating a turnaround strategy and engaging in streamlining the corporate structure to increase the value it creates for the promoters and other stakeholders. You can view some of the noteworthy credentials we’ve accumulated for corporate restructuring projects on the page below.
FAQs
Corporate restructuring is a strategic process that involves making significant changes to a company’s organizational structure, shareholding structure, operations, or financial setup. It is important for companies seeking to adapt to changing market conditions, enhance efficiency, improve financial performance, or achieve specific strategic objectives.
Corporate restructuring can offer various benefits, including cost savings, improved profitability, increased competitiveness, enhanced flexibility, and the ability to realign resources with strategic goals.
Corporate restructuring can take several forms, such as mergers and acquisitions, divestitures, spin-offs, layoffs, debt restructuring, changes in ownership structure, and changes in business focus (e.g., from product-centric to customer-centric).
Signs that a company may require restructuring include declining financial performance, excess debt, operational inefficiencies, a need for cost reduction, changes in market conditions, or a misalignment between the business and its strategic goals.
The choice of restructuring type depends on the company’s specific challenges, goals, and circumstances. It typically requires a thorough analysis of the current state of the business and a clear understanding of the desired outcomes.
A corporate restructuring consultant or advisor provides expertise and guidance to help companies navigate the complexities of the restructuring process. They offer strategic recommendations, help with planning, and assist in the execution of restructuring initiatives.
The duration of a corporate restructuring process varies widely based on the scope and complexity of the changes involved. It can range from several months to a few years. It’s important to focus on the quality of the process rather than the speed.
Restructuring can have significant implications for employees and stakeholders. It may result in changes in roles and shifts in corporate culture. Effective communication and support are essential to manage these transitions.
Yes, corporate restructuring can be a viable alternative to bankruptcy for financially troubled companies. It allows them to reorganize, reduce debt, and regain financial stability while avoiding the legal process of bankruptcy.
Corporate restructuring often results in changes to financial statements, particularly when it involves asset sales, write-downs, or debt restructuring. It’s crucial to understand and properly disclose these changes in financial reporting.
A company should identify and pen down reasons for undergoing corporate restructuring. Once the problems/ issues are listed, specific clear goals also need to be identified and listed and should be communicated to the Consultant too
Risks include employee morale issues, potential loss of key talent, disruption to operations, and financial uncertainty. These can be mitigated through clear communication, well-managed transitions, and contingency planning.
Yes, recovery is possible with appropriate adjustments and learnings from the failed attempt. It’s essential to reassess the situation, make necessary changes, and implement a revised plan.
To determine the need for restructuring, start by conducting a thorough internal and external analysis. If restructuring is deemed necessary, the first step is to seek expert advice and develop a clear restructuring plan that aligns with your company’s objectives.
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