Types Of Reorganizations
A business that wants to improve efficiency or improve profitability may restructure the way the company works to achieve one or both of those objectives. This process of restructuring is what is called corporate reorganization. Since corporate reorganization is a significant undertaking that impacts the corporation’s bottom line, a lot of planning, experts’ foresight and other considerations are needed for the process to be successful. An experienced business lawyer can help guide you through the legal aspects of corporate reorganization.
Types Of Corporate Reorganization
Most companies choose corporate reorganization when their attempts at getting venture capital have failed to increase their value. Some of the forms of corporate reorganization include the following:
- Type A: Mergers and Consolidations
- Type B: Acquisition with the intent of subsidizing the target company
- Type C: Acquisition with the intent to liquidate the target company
- Type D: Transfer
- Type E: Recapitalization
- Type F: Identity Change
- Type G: Transfer
Type A Mergers And Consolidations
A merger occurs when two or more business entities merge into a single surviving entity. For example, when company A and B are merging, Company A assumes all assets and liabilities of Company B. The single organization created by this merger keeps the Company A name. Smaller companies often merge with bigger companies to benefit from the larger company’s brand recognition and market traction. On the other hand, consolidation involves multiple companies joining to form a new entity. For example, Company A and Company B can join to form Company C.
Type B Acquisition With The Intent Of Subsidizing The Target Company
Type B reorganization involves a corporation acquiring another company’s stock with the acquired company becoming a subsidiary of the acquiring corporation. The acquisition plan must be carried out within a short period such as within a year. This plan is just part of the moves the acquiring company has to make to acquire control, and the transaction’s main focus is acquiring voting stock.
Type C Acquisition With The Intent To Liquidate The Target Company
Type C reorganization involves the target corporation liquidating as a condition of a type C acquisition plan. In certain situations, the IRS may waive the requirement for liquidation of the target company. Once the target company is liquidated, the target corporation shareholders become shareholders in the acquiring company. Reorganization provisions concern tax consequences, not liquidation rules.
Type D and Type G Transfer
Type D reorganization involves transferring assets between corporations. Shareholders of the corporation that is transferring the assets must control the corporation to which the assets are transferred. Type D reorganizations take the form of split-offs or spinoffs. Type G transfers involve transferring some or all assets of a company that is required to file for bankruptcy to a new company.
Type E Recapitalization And Type F Identity Change
Type E reorganization is when company shareholders exchange stocks and securities for new stocks, securities or both. The main focus here is on a company’s capital structure. Only one corporation is involved in this reorganization. Find an experienced business lawyer that can help you when you are restructuring or reorganizing your business.