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What is Corporate Restructuring?

Taking advantage of tax breaks may be part of a corporate restructuring.
Eliminating personnel may help keep a company operational during rough times.
Corporate restructuring may take place as a result of the acquisition of the company by new owners.
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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 27 September 2014
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Corporate restructuring is the process of redesigning one or more aspects of a company. The process of reorganizing a company may be implemented due to a number of different factors, such as positioning the company to be more competitive, survive a currently adverse economic climate, or poise the corporation to move in an entirely new direction. Here are some examples of why corporate restructuring may take place and what it can mean for the company.

Restructuring a corporate entity is often a necessity when the company has grown to the point that the original structure can no longer efficiently manage the output and general interests of the company. For example, a corporate restructuring may call for spinning off some departments into subsidiaries as a means of creating a more effective management model as well as taking advantage of tax breaks that would allow the corporation to divert more revenue to the production process. In this scenario, the restructuring is seen as a positive sign of growth of the company and is often welcome by those who wish to see the corporation gain a larger market share.

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However, financial restructuring may take place in response to a drop in sales, due to a sluggish economy or temporary concerns about the economy in general. When this happens, the corporation may need to reorder finances as a means of keeping the company operational through this rough time. Costs may be cut by combining divisions or departments, reassigning responsibilities and eliminating personnel, or scaling back production at various facilities owned by the company. With this type of corporate restructuring, the focus is on survival in a difficult market rather than on expanding the company to meet growing consumer demand.

Corporate restructuring may take place as a result of the acquisition of the company by new owners. The acquisition may be in the form of a leveraged buyout, a hostile takeover, or a merger of some type that keeps the company intact as a subsidiary of the controlling corporation. When the restructuring is due to a hostile takeover, corporate raiders often implement a dismantling of the company, selling off properties and other assets in order to make a profit from the buyout. What remains after this restructuring may be a smaller entity that can continue to function, albeit not at the level possible before the takeover took place.

In general, the idea of corporate restructuring is to allow the company to continue functioning in some manner. Even when corporate raiders break up the company and leave behind a shell of the original structure, there is still usually the hope that what remains can function well enough for a new buyer to purchase the diminished corporation and return it to profitability.

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anon298294
Post 5

This is what has happened to the middle class. Those at the top keep their jobs, and all others are subject to removal. Then the re-hire consists of a lower rate of pay. Have you been affected? Imagine the re-structuring of the United States. United we stand, divided we fall!

anon106975
Post 4

restructuring should not be seen as purely fire fighting. effective managers create the big picture and move towards it even before the fire starts. one can restructure the big picture and the pieces to it. by bonard m.

latte31
Post 3

Sunshine31-I know a lot of times when companies are struggling, they look at corporate debt restructuring consulting services in order to determine the best ways to financially scale back.

The company here needs direction in terms of which positions are no longer necessary and critical that need to be eliminated.

A very funny movie touching on this exact subject is Office Space. In Office Space, the corporate restructuring firms that comes in starts to interview employees in order to determine what exactly do they do at the company, and how necessary their position is.

You really see the employees discomfort because they know that their job might be eliminated. Although corporate restructuring services are used with struggling companies, this movie pokes fun at the process. It makes light of a distressing issue that many of us face in the corporate world.

sunshine31
Post 2

SauteePan-Sometimes corporate restructuring examples include selling off parts of the business in order to remain profitable. GM, General Motors sold off its Saturn line of cars in order to gain capital to continue to fund the company.

When I think of a merger and acquisition, I always think of Bank of America and Countrywide. Bank of America bought Countrywide which was heavily laden with debt.

Some large companies like Bank of America choose to purchase other companies to gain even more market share and become a more powerful company.

But along with the market share also comes the debt. They were lucky and were able to receive government bail out money which they paid back with interest.

SauteePan
Post 1

Mergers and acquisitions offer many benefits to the buying firm. When buying undervalued assets the benefits are greatest to the purchasing firm.

Because the book value of current assets have to be reevaluated at the new market rate, this creates a downgrade of the assets which also lowers the taxable income for the firm. This creates a nice tax shelter for the purchasing company.

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