Business Restructuring

What is business restructuring?

Business restructuring is one of the business restructuring methods implemented to grow a company’s business. In today’s rapidly changing market, companies are increasingly choosing business restructuring as a way to optimize and strengthen their limited management resources. In this article, I will explain the business restructuring in detail.

What is business restructuring?

Business restructuring is to reorganize the basic part of a company by changing the structure and structure of a business or company. According to the “Business Restructuring Guidelines” of the “Business Restructuring Subsidy System” of the Ministry of Economy, Trade and Industry and the Small and Medium Enterprise Agency, business restructuring is defined as “expanding into new fields” in a new business form reorganized through reorganization under the Companies Act. In this context, conversion refers to conversion of businesses, conversion of industries, or the conversion of business formats.

Currently, the need for business restructuring of small and medium-sized enterprises is attracting attention, and laws and regulations for business restructuring promotion and business restructuring taxation have been established. For example, a representative example is the “subsidy for transfer of management resources and business restructuring support project” to take over the management resources, employment system, and technology of small and medium-sized enterprises. As in the cases of Prince Hotel Co., Ltd. and Toyo Kanko Jigyo Co., Ltd., which were certified in March 2022, companies that have received certification for their business restructuring plans are entitled to “capital investment tax reduction (small and medium-sized enterprise management strengthening tax system),” You can receive tax measures such as the accumulation of a reserve (small and medium-sized enterprise business restructuring investment loss reserve).

In order to promote the business restructuring of  companies in the future, the “Business Restructuring Study Group” has been established to survey and research the necessity and current situation of business restructuring, and to compile specific measures and practical guidelines.

Difference between business restructuring and organizational restructuring

Strictly speaking, business restructuring and organizational restructuring have different meanings. However, since these words are very similar, there are cases where they are used with exactly the same meaning, so you need to be careful. Organizational restructuring is a term defined by the Companies Act, and refers to the restructuring of a company’s organization through “merger,” “split,” “share transfer,” “share exchange,” and “business transfer.” On the other hand, business restructuring is also a word used in the “business restructuring guidelines” in the “business restructuring subsidy system”, and it is necessary to carry out organizational restructuring under the Companies Act while satisfying the “business restructuring requirements”. refers to

Effects expected from business restructuring

Business restructuring is expected to bring benefits such as the recovery and improvement of business performance and the streamlining of corporate management.

Recovery and improvement of performance

Companies may be required to restructure their businesses and operations in order to maintain and improve profits in today’s rapidly changing world. When restructuring a business, we formulate a business plan and make decisions such as creating new markets, converting to a new industry, and adapting business formats.

In terms of “development into new fields,” we will develop new products and develop new markets, not only in existing industries, but also in industries that are expected to grow in the future. “Business conversion” refers to advancing into businesses with strong performance within the same industry based on market trends, manufacturing and selling new products and services, and increasing the sales ratio of new businesses without changing the existing main industries. measures to extend it.

In addition, “industry conversion” is a method of entering a market with future growth potential, handling new products and services, and changing the main industry to a new industry that is different from the past. In addition, in the “transformation of business”, we will manufacture and provide products in new ways that are different from the past, such as utilizing online services and introducing AI. By effectively utilizing a company’s management resources, optimizing the use of resources, and entering new markets, it will be possible to recover and improve previously sluggish business performance.

Efficient corporate management

Even in situations where it is difficult to generate profits, such as when the company’s performance is declining, formulating a business plan and reorganizing the business may enable the company’s management resources to be used effectively. Methods used in organizational restructuring include mergers, splits, and share exchanges.

If business performance is deteriorating, we analyze the current situation, identify the factors, and implement cost reductions and restructuring of the business structure to improve profits. Improve management efficiency by implementing cost reductions that reduce personnel and expenses, allocating the four management resources of “people, goods, money, and information” to the necessary departments, and introducing IT systems. is possible.

In a company with multiple departments, sales activities are carried out in each department, so when looking at the company as a whole, there are cases where management resources such as human resources are uneven. By restructuring the organization, it is possible to optimize management resources not only within the department but also within the company as a whole, making it possible to implement large-scale measures formulated in the business plan. Efficiency that leads to improved management profits can be expected.

Advantages and disadvantages of business restructuring

There are five main methods of business restructuring: merger, division, share transfer, share exchange, and business transfer. Since each method has its own advantages and disadvantages, it is important to choose the method that best suits your company when restructuring your business.

Merger

A merger is the combination of two or more companies into one company. There are two types of mergers: absorption mergers and consolidation mergers. In an absorption merger, the other companies are absorbed and disappear, leaving only one surviving company. A new merger is a method of establishing a new company and absorbing the existing company into the new company. In a consolidation merger, the newly established company must re-acquire all the licenses necessary for the business, so in most cases an absorption merger is carried out due to problems such as procedures.

Since the companies are consolidated into one, there are advantages such as enhancing the relationship between the companies before the merger and realizing the effects of the integration at an early stage. Stock mergers do not require financing for the buying company. In an absorption merger, the rights and obligations of the remaining company can be inherited, so the procedure can be simplified.

However, in a merger, integration work, such as multi-company systems and employee allocation, must be done quickly. This has the disadvantage of placing a heavy burden on employees. In addition, it should be noted that various procedures such as share transfer tend to be more complicated than other business restructuring.

Split

A company split is a method of transferring some of the businesses that a company manages to another company. Company splits can be absorption- or incorporation-type splits”. An incorporation-type company split is a method of transferring business from an existing company to a new company. The company that takes over the business pays the selling company the consideration.

It is a method similar to business transfer, but business transfer requires transfer procedures such as business contracts because assets and liabilities are transferred in addition to the business. In a company split, the company continues to exist with the remaining businesses even after the division is transferred. It is suitable for cases such as when you want to let go of a business that is not profitable within the company, or when you want to start a new business independently.

In a company split, the buying company only needs to issue new shares as consideration, so there is no need for acquisition funds. Since the contractual relationship is continued as it is, the procedure is relatively simple. One of the benefits is that you can start a new business immediately by taking over the business.

However, there are also disadvantages such as the risk of the stock price of the buyer company falling, the debts and obligations of the seller company, if any, will be taken over, and a special resolution of the general meeting of shareholders is required.

Stock transfer

A stock transfer is a method of creating a new parent company in one or more existing companies and transferring all the shares of the existing companies. It is done when you want to put together a group company. A newly formed company receives shares from an existing company, so the shareholders become shareholders of the new company.

Stock transfer does not require funds for stock acquisition, and if the approval of two-thirds or more of the existing company’s shareholders is obtained, the existing company can be made a wholly owned subsidiary. As a result, there are merits such as the possibility of gradual business integration while the subsidiary continues to exist.

Since the shares are transferred, there is a problem that the ratio of the new shares held by the shareholders changes, and it may take several months to obtain approval at the general meeting of shareholders and proceed with procedures such as creditor protection procedures. There is one downside.

Stock Exchange

A stock exchange is a method in which a buyer company exchanges all the shares of the seller company for its own shares and makes the seller company a subsidiary. This is done when you want to make a group company a wholly owned subsidiary, or when you want to simplify the shareholder composition of a group company.

No need to deal with minority shareholders who do not agree, because it only needs to be approved by a special resolution at the general meeting of shareholders, no need for acquisition funds if the stock is used as the consideration, and the seller company will continue to exist, so it will take time to integrate There are benefits.

Disadvantages include the risk of stock prices falling due to an increase in shares of the buyer company when new shares are issued, and changes in the shareholder composition of the buyer company.

Business Transfer

Business transfer is an M&A method of transferring business assets for money. There is no transfer of corporate status in business transfer, and part or all of the business is transferred. This is a method that is difficult to choose due to the procedures for changing all contracts and rights relationships in order to transfer various assets such as buildings, inventory, employees, and customers related to the business.

In the case of business transfer, the legal personality can be retained even after the business is sold, so it is possible to conduct another business with the remaining legal personality. Since only profitable businesses can be sold by business transfer, there is an advantage that the buyer company can purchase only the necessary business.

Disadvantages of a business transfer include the transfer of all assets and rights, which not only requires the consent of the obligee, but also the need to re-conclude various contracts such as real estate lease agreements.

Flow of Business Restructuring

When reorganizing a business, first select the method to implement from methods such as “merger”, “split”, “share transfer”, and “share exchange” and determine the strategy. We will then proceed with negotiations to conclude a contract. The specific steps are generally as follows:

  1. Determined method of business restructuring
  2. Select target companies and negotiate
  3. As a promise not to disclose the details until the M&A contract is concluded, the purchase price and various conditions are determined after concluding a non-disclosure agreement
  4. Conclude a basic agreement and conduct due diligence (survey on the seller company)
  5. After confirming the survey results, conduct detailed negotiations on terms and conditions before final agreement
  6. Sign final contract and closing

After that, we will notify the parties concerned of the implementation of the business restructuring through public notices in the official gazette, etc., and proceed with the general meeting of shareholders and the protection of creditors. In addition, we will complete various procedures such as registration and presentation of post-disclosure documents on the M&A effective date of the contract.

CONCLUSION

Business restructuring is the reorganization of corporate activities by changing the structure of the business. Currently, business restructuring is being promoted to optimize management resources, mainly for the purpose of improving productivity in small and medium-sized enterprises. With Microsoft products that can support various industries with IT systems, the operations necessary for business restructuring can be carried out efficiently.

 

Leave a Reply

Your email address will not be published. Required fields are marked *