Corporate restructuring can reduce debt, improve efficiency, and incorporate other businesses. Bankruptcy, negotiations with creditors, and mergers and acquisitions are common methods. Changes to workforce or organizational structure can improve profitability, while separating smaller companies or pursuing joint operations can also be advantageous.
Business restructuring is typically designed to manage business debts, improve profitability and efficiency, or incorporate other businesses. Bankruptcy and negotiations with creditors are commonly used to reduce a company’s debt burden. Changes to the structure of a corporate workforce or to the organizational system used by a company can improve profitability. Mergers and acquisitions allow one company to gain control over other companies.
A large debt burden can significantly hamper business operations. A variety of corporate restructuring involves changing some or all of a company’s debts. This may involve securing new loans on more favorable terms or negotiating with creditors. In some cases, a corporate bond issue can be used to restructure debts.
In other cases, bankruptcy can be used as a tool for corporate restructuring. If a business is saddled with unsustainable levels of debt or faces other serious difficulties, management may choose to initiate bankruptcy proceedings. The specific laws governing this process vary, but bankruptcy typically allows a company to renegotiate some of its financial obligations and often involves the granting of equity interests in a restructured business.
Some types of corporate restructuring are used to improve the operational efficiency of a business. Sometimes it is advantageous for a company to reduce wages, and a targeted layoff program can be part of a restructuring drive. In other cases, it may be necessary to reconfigure the relationships between different units within a company to improve efficiency and increase profitability.
Businesses also sometimes find it advantageous to separate smaller companies. In some cases of this type of corporate restructuring, part of a company’s business may be less profitable and may be discarded in order to strengthen the primary business. Other companies may determine that different units may simply operate more efficiently and profitably if they are separate from each other. This tactic is especially common when changes in technology dramatically change the business environment in which a company operates.
Companies periodically find it advantageous to pursue joint operations with other companies. Mergers present a roughly equal union between two firms whose economic enterprises are likely to work better together than apart. The business activities of both companies involved in a merger are usually reorganized to some extent. In other cases, a company may simply acquire another. Such acquisitions also often lead to corporate restructuring and are particularly useful when a smaller company has proprietary control over some product or process that could be particularly profitable if developed or marketed using the resources of a larger company.
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