Corporate Reorganization Definition

The corporate reorganization definition is something you should know if you are planning to change the tax structure of your corporation or facing bankruptcy.3 min read

The corporate reorganization definition is something you should know if you are planning to change the tax structure of your corporation, facing bankruptcy, or preparing for a merger or acquisition. Reorganizing your corporation can be beneficial in a number of ways, from increasing profits to gaining protection in tough times. There are several different types of corporate reorganization, with varying purposes, benefits, and challenges.

What Is the Corporate Reorganization Definition?

Corporate reorganization may refer to any of the following:

• The rehabilitation of the finances of a company following a bankruptcy.
• A process that has an impact on a corporation's tax structure.
• An acquisition, merger, or sale of a company that results in a change in ownership, stock, or management or legal structure.

In the case of a bankruptcy, corporate reorganization is a court-supervised process of restructuring the finances of a company after filing bankruptcy. According to Chapter 11 of the bankruptcy code, a company will have protection against its creditors from the time it proposes a reorganization plan to time the court reviews and approves the plan.

In addition, a company can reorganize itself, including its corporate and legal structure, so that it can take advantage of current or new tax regulations. An acquisition or merger may also lead to reorganization of a company's ownership, equity structure, operations, and management. Through reorganization, the company can utilize the efficient practices or methods of the new management, capital assets, and technologies.

Corporate reorganization is an essential step for a company because it can potentially open up new opportunities, provide financial and legal protection, and increase profits and efficiencies.

What Are the Types of Corporate Reorganization?

As mentioned on the Thinking Managers website, corporate reorganization usually takes place following buyouts, takeovers, acquisitions, or other types of new ownership, or after the filing or threat of bankruptcy. According to the VC Experts website, reorganization involves significant changes in the equity base of a company, such as converting its outstanding shares to common shares or combining its outstanding shares into fewer shares, which is also known as a reverse split. Additionally, corporate reorganization often occurs when companies fail to increase their values after attempting new venture financing.

Type A: Mergers and Consolidations

Tax Almanac reported that the first recognized type of reorganization is a statutory acquisition or merger, wherein consolidations or mergers are both based on the acquisition of the assets of a company by another company.

Type B: Acquisitions — Target Corporation Subsidiaries