Business Law | Corporate Restructuring

Corporate Restructuring Attorney

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What is fund corporate restructuring?

Large or small, businesses no matter the size will go through a corporate restructuring at some point. Corporate restructuring is usually an action taken place to significantly adjust capital structure or its operations. Often it is financial reasons as to when corporate restructuring occurs like significantly modifying debt and operations as well as changing the structure of a company if there is a merger or consolidation, a corporate buyout/acquisition, a corporate takeover, a recapitalization, or a divestiture (spin-offs and split-offs).

Why do I need legal guidance corporate restructuring?

In order to conduct a successful corporate restructuring, there are several players involved including financial, operational, legal and other business entities. The most important role a lawyer plays in corporate restructuring is to negotiate and strategize restructuring plans so that there is a smooth transition to a more profitable business in the long term. During these negotiations and strategy developments there are a number of factors to consider like reducing, eliminating, or changing product or services; canceling contracts; writing off assets; mitigating risk and error; creating the appropriate divestiture approach; planning for tax optimization; and many other legal issues.

Corporate Restructuring Strategies

As a company undergoes a corporate restructuring, there are a number of strategies financial and legal teams will advise and guide businesses through. Some examples of such strategies are:

If a business is in a financial crisis, a strategy commonly used is a divestiture. A divestiture is the action or process of selling or liquidating subsidiaries, assets, investments, or intellectual property (IP), to exit a business through a trade sale. From there a new business is created from part of the existing company (a spin-off) or it may issue an initial public offering (IPO), which allows to public to purchase a portion of the business.
2Equity Carve-Out
If a company needs cash, it might take subsidiary stocks and offer it for sale to the general public while retaining control of the company.
Franchising is the distribution of products, services, business operations, intellectual property, and technology by the franchisor to the franchisee. The franchisees will pay a fee to the franchisor for the ability to do business under the franchisor.
4Joint Venture
A corporate restructuring strategic move two companies may take is the joint venture route. Joint ventures involve two companies joining together to create a new business entity. Each company contractually agrees to contribute resources and share expenses, profits, and control of the new company.
5Leveraged Buyout
A leveraged buyout is the purchase of the controlling share in the stock of a company by a person or other organization or company. Leveraged buyout may occur when a company wants to corner the market. For example, larger companies will buyout smaller companies to increase customer base and operations.
6Mergers and Acquisitions (M&A)
Mergers and acquisitions (M&A) deal with the merging of two companies, which consequently form a new legal entity under a new business name. A M&A transaction may be used when businesses are in financial distress but can also be used to when businesses find opportunity to maximize earnings.
7Reverse Merger
A reverse merger is an acquisition where a private company purchases a public company that has no legitimate business operations and limited assets to reverse merge into the public company to become a brand-new public company with tradeable shares. This strategy can be appropriate for a public company with limited assets in order for it to survive.
A company may use a sell-off technique to reduce non-core business offerings by selling them and focusing on the core business.
9Strategic Alliance
A strategic alliance is when two or more companies align to undertake a mutually beneficial project while remaining independent organizations.

With some corporate restructuring strategies like divestiture, M&A, and reverse mergers, a valuation of the business or business assets is necessary. A valuation may include an analysis of the business’ market, income, and cash methods.

Any business in the position to go through a corporate restructuring will need the right financial and legal teams on their side to make sure that from start to finish the process has a thoughtful strategy in place and airtight deals and contracts signed. If you need assistance with your corporate restructuring strategy, contact us contact us at 833-ASK-BLAKE or contact us here.

When a company becomes financially distressed, meaning a company cannot generate sufficient revenues or income to pay their debts, and are unable to restructure on their own, the company will file for bankruptcy. Filing for bankruptcy allows a business a fresh start with debt forgiveness but also gives creditors the opportunity to obtain some repayment from the liquidation of assets from the business. All bankruptcy filings must be made through the U.S. federal courts.

There are a number of different types of filings one can make as they enter into bankruptcy but the bankruptcy filing that effects the structure of businesses is Chapter 11. Chapter 11 Bankruptcy is designed to allow the business filing for bankruptcy to stay open, restructure the business, and become profitable once again. Often Chapter 11 is referred to as a “reorganization” bankruptcy. Under Chapter 11 a company can propose a reorganization plan to the court to restructure debts that is in the best interest of the creditors. Many name brand retailers have filed for Chapter 11 including J.C. Penney, Sears, Toys R Us, Neiman Marcus, and Circuit City.

Filing for Chapter 11 can be a very expensive and lengthy process. When filing for Chapter 11, companies are forced into a corporate restructuring. And some businesses, in order to avoid filing for a Chapter 11, might choose to take a restructuring route by using any number of corporate restructuring strategies to simplify the process and save the company money

Corporate Restructuring FAQ’s

1What are the reasons for corporate restructuring?
There are a number of reasons why companies find the need to restructure. Some companies will restructure because it has entered into bankruptcy, it is trying to stay out of bankruptcy, or is looking to make the company more profitable.
2What are the advantages to corporate restructuring?
The purpose of corporate restructuring is more often than not a strategy to ensure the company is profitable and successful. Profitability aside, the advantages to corporate restructuring can include operation efficiencies as a result of a reduction in redundancy (i.e., reduced workforce) and an introduction to new technologies that automate the business versus manual work. Also, depending on how the company is restructured, the business can gain a competitive edge in its respective vertical or expand verticals and product offerings. Expansion can also include growing geographically and digitally, as well as an increase in workforce.
3What are the problems with corporate restructuring?
Corporate restructuring doesn’t always have positive outcomes. There are disadvantages and problems that are associated with corporate restructuring. One major problem being employee morale. Sometimes, corporate restructuring can come as a surprise to employees, or they are not given the full details. This creates uncertainty, distrust, stress, and a loss of focus and productivity. Additionally, if the company is downsized there can be a loss of institutional knowledge and skillset. These types of impacts to employees can create a negative image of the company overall. Additionally, corporate restructuring can impact company funding and investor perspectives. If investors are not on board with the corporate restructure or are distrustful of the entire process this could have a negative impact on funding. If it is a public company and investors are not educated on the purpose and strategy of the corporate restructure, stock prices may drop.
4What do businesses need to consider when going through a corporate restructuring?
There is a laundry list of factors that businesses need to consider prior to and while restructuring. Some of those factors are financial standing and debt, the market and customer base, competitive positioning, financial and investor relationships, employees, environmental impact, inventory, vendors and operations, quality control, technology, equipment, marketing and communication, legal implications, taxes, plus much more.
5How can a company restructure effectively?
The most important thing a company can do to ensure it restructures effectively is to hire qualified people with the right expertise. To create an effective restructuring plan a business will need legal, financial, business, public relations, and communication professionals to guarantee contracts are sound, negotiations go smoothly, the business or businesses involved are on a path to success, and that all these changes are communicated effectively to the employees, investors, and the public.

Glossary of Important Terms

Here are some important terms to learn when it comes to corporate restructuring:

Liquidation is the process of bringing a business to an end and involves selling inventory at discounted rates (if there is inventory) and distributing the business’ assets to claimants. Generally, the business will no longer exist after liquidation.
When a company becomes insolvent it can no longer pay its bills, debts, or other financial obligation on deadline.

Contact a Business Law Attorney Who Specializes in Corporate Restructuring

Any business in the position to go through a corporate restructuring will need the right financial and legal teams on their side to make sure that from start to finish the process has a thoughtful strategy in place and airtight deals and contracts signed. If you need assistance with your corporate restructuring strategy, contact us contact us at 833-ASK-BLAKE or fill in the form below.