A Complete Guide to Corporate Restructuring

Are you interested in learning more about corporate restructuring? Corporate restructuring is the process of changing a business’ structure.

This can include everything from merging with another company to splitting up divisions within your own organization.

It’s important that you understand how this works so that you know what to expect if it happens to your company or one of your clients. We have all the information in our corporate restructuring guide right here.

Read on for more information.

What Is Corporate Restructuring?

When a company wants to change how it does things, it needs to follow a set of steps.

These fall into 4 categories: organizational restructuring, financial restructuring, operational restructuring, and tax planning.

The goal of corporate restructuring is to improve the company’s long-term financial performance by cutting costs and employing the expertise of a corporate restructuring lawyer is advisable.

Carve-Out Structures

Carve-out transactions are when a company splits itself into two or more new companies. Each of the new companies is either owned by the original company’s shareholders or other investors.

If other parties invest in these new companies alongside the parent firm, those investments are usually structured as equity investments (stock is privately traded). 

The parent company typically doesn’t give any guarantees to investors, because it doesn’t want to give away shareholders’ money unnecessarily.

An example is when United Technologies Corporation (UTC) made a $16 billion deal with Goodrich Corporation. UTC then divided this part of their business into two separate companies.

One of these is for producing airplane parts and another for building electronic components such as sensors and electronics.

The stockholders in both new companies were given shares in each so that there would be no tax implications or change in total equity value.

Roll-Up Structures

A roll-up transaction is when a few companies join together to form one bigger company. The new, bigger company is usually owned by the investors, who can make decisions for all the companies.

When two or more companies combine this way, they usually aren’t traded publicly.

In a roll-up transaction, each subsidiary is usually run as a separate division of the parent company. The parent company usually has control over these subsidiaries’ operations and management.

The parent firm also often holds all voting rights in its subsidiaries, which gives it complete control over its future direction and profitability.

Spin-Off Structures

Parent companies sometimes create new subsidiaries and sell them to the public. These new companies become their own publicly traded entities.

Investors must decide whether to buy shares in the parent company, the new subsidiary, or both. In some cases, people can sell shares of one or both companies to others.

Typically, the news division’s management team can make decisions on their own about where to get money and what investments to make. They don’t have to ask their old owner for permission.

The only thing they need to do is pay taxes on any money they make from the subsidiary.

Acquisition Structures

There are three ways for a company to get assets or another business. The first way is by involving the public markets and having an initial public offering (IPO).

The second way is when other companies are involved. The third way is when a company gets the target to agree on a price for all assets and/or stock in the latter company.

This deal is finalized through an acquisition agreement and is overseen by a corporate restructuring attorney.

The management team from the parent company usually decides what to do with any new assets after an acquisition. The company also gains control over all of the target company’s operations.

After this agreement is reached, the acquiring company uses its own stock or cash to purchase 100% ownership in its chosen subsidiary. Once it has done so, there are no other outside shareholders involved.

Types of Acquisitions Public and Privately Held Companies Can Choose From

This is when you find someone to buy your business. You put your company up for sale and let people know. You can do this by yourself or with a third-party agent or broker.

When someone buys your company, they also agree to take on all of the company’s debts.

Another way to sell your business privately is through a leveraged buyout. This is when a company uses money from a bank, private equity firm, parent corporation, or some other investor to purchase 100% ownership.

This can be done with very little – or no – money down. To repay the loan they got from the lenders, they use the company’s revenue to make interest payments.

If there is any money left over, they will use it to pay off their loan. The company is now privately owned.

When a business owner wants to sell their company, they put it up for auction. This is like a going-out-of-business sale. This happens when a business goes bankrupt or if they have too much debt.

They do this to sell it quickly to multiple people.

In a buyout, the seller is not required to give any warranties or guarantees about the future of the business. This means that buyers are taking a risk by purchasing the company before they have full control over its operations.

The final main way to buy a company is through an all-cash deal. This usually means that one company pays cash to buy another company. This is different from other types of deals, where debt is often used.

All-cash deals are simpler and involve fewer strings attached. Some people do not have a lot of money. So, some companies have to sell things in order to get money.

So, Are You Ready to Restructure Your Corporation?

Corporate restructuring can be a difficult process, but it is often necessary for businesses that are struggling. By understanding the different types of corporate restructuring, you can make the best decision for your business.

We hope this corporate restructuring guide has helped to shed some light on the topic.

If you are ready to restructure your corporation or just need some more advice, give us a call today!