Reorganization and Restructuring of a Legal Entity
Reorganization and restructuring of a company are strategic processes that impact its operations and efficiency. These processes may involve changes in the company’s structure, ownership, finances, and strategy, and they play a crucial role in its development and adaptation to changing market conditions.
When is Restructuring Needed, and When is Reorganization Necessary?
Restructuring and reorganization are two different approaches to altering the structure or functioning of a business or organization, and the choice between them depends on the specific situation and objectives. Here are the most common cases where each of these options may be required.
Restructuring of a legal entity:
- Financial issues such as debts, losses, or insufficient profitability;
- Business optimization;
- Mergers and acquisitions.
Reorganization of a legal entity:
- Change in legal status, such as transitioning from one type of legal entity to another;
- Division into separate companies;
- Alteration of ownership structure.
What is Business Reorganization?
Business reorganization is a process whereby a business makes changes to its organizational or legal status, structure, strategy, or operations with the aim of improving its functioning, competitiveness, and performance. Reorganization can be carried out for various reasons and can take different forms depending on a company’s goals and needs.
How Does Business Reorganization Occur?
Business reorganization is a complex process that involves several key steps and actions. Here is a general outline of how it unfolds:
- Analysis of the current state of the enterprise and determination of reorganization goals.
- Development of a plan for changes and specific actions to achieve the set goals.
- Determination of the legal status of new structures and preparation of the necessary documents.
- Development of budgets, income and expense forecasts, as well as financing plans for the reorganization.
- Obtaining necessary permits and approvals from regulators and stakeholders.
- Implementation of necessary actions, such as asset transfers, ownership changes, staff reevaluation, and more.
- Analysis of the results of the reorganization and verification of goal achievement.
- Documentation of legal changes with relevant authorities.
- Establishment of a control system and resolution of issues arising after the completion of the reorganization.
What is the Transformation of a Legal Entity?
The transformation of a legal entity is a legal process in which an existing legal entity changes its legal status, structure, or ownership form without ceasing its operations. In other words, it is a process through which a business or organization can alter its legal form, status, such as transitioning from an individual entrepreneur to a legal entity, ownership structure, such as transitioning from mixed ownership to private or state-owned, and so on.
Who Can Decide on the Reorganization of a Legal Entity?
The decision to reorganize a legal entity can be made by the founder (owner) or the governing bodies of that entity in accordance with its charter or founding document. Typically, such decisions are made through meetings (general meetings of shareholders, founders’ meetings, and so on) or by the decisions of governing bodies (such as the board of directors).
What is Included in Business Reorganization and Restructuring?
Business reorganization and restructuring can include the following aspects:
- Change of legal status and ownership structure;
- Financial and debt optimization;
- Changes in corporate governance;
- Reevaluation of strategy and markets;
- Asset reallocation;
- Staff changes;
- Compliance with legal requirements and obtaining permits;
- Attracting investments and financial resources.
Sometimes, due to various circumstances, a company may cease its operations. The main options for these processes include:
- Company liquidation. This process involves the cessation of all organization activities and the distribution of its assets among creditors and owners. Liquidation can be voluntary (by decision of the owners) or compulsory (by court order or other reasons).
- Bankruptcy. This is a state of financial instability where the organization cannot fulfill its financial obligations to creditors. Bankruptcy options may include debt restructuring, asset distribution among creditors, or the cessation of company operations.
Both processes require compliance with legal requirements and procedures and may involve addressing legal issues and the participation of various parties, such as creditors, owners, government authorities, and more. These processes aim to resolve the financial issues of the company and maximize benefits for all stakeholders.