Corporate restructuring or business restructuring has gained popularity among large and small businesses around the world. It has become an ideal strategy to meet the expansion or contraction needs of an organization.

Organizations planning to expand their base resort to mergers, acquisitions, mergers, asset purchases, joint ventures, and acquisitions. They are all different forms of corporate restructuring that bring together the resources of two businesses under one umbrella. They are considered synergistic in nature because they lead to greater benefits from economies of scale, the use of tax havens, the creation of a large number of assets and the establishment of more efficient management.

Alternatively, contracting the business through divestitures, spin-offs, and spin-offs are other forms of corporate restructuring. Here, the focus is to eliminate a loss-making strategic business unit to reduce business losses. These forms are also preferred when organizations are striving for greater operational efficiencies and want to focus more on areas that have immense profit-generating potential.

A divestiture involves the sale of a division of an organization to another company. It’s a contractionary move from the seller’s point of view. In a spin-off, a business unit is spun off into a separate company that has its own legal identity and common label. In a division, a single organization, which is a parent company, is divided into two or more separate organizations.

A popular form of corporate restructuring is to raise funds from the general public through equity or debt. This helps the company to collect large amounts of funds that would otherwise be impossible through the private route. In this, the company conducts an initial public offering inviting people to apply for its prescribed minimum number of shares with a fixed par value. In addition, the status of the company changes from a limited company to a joint stock company after completing a long list of legal paperwork.

Alternatively, a public company going private is also a form of corporate restructuring. It is commonly known as privatization. In many developing countries, the public sector was established to look after strategically important industries such as steel, oil, and defense. As time went by, inefficiencies like red tape and the red carpet crept into the system, resulting in ongoing financial losses. Therefore, the government of these countries began to transfer ownership of their businesses to private hands.

The current business scenario has given rise to various types of business combinations and corporate restructurings that are carried out with the fundamental objective of achieving a competitive advantage in the market.