Objectives of Corporate Restructuring

Corporate restructuring once was a much more rare occurrence than it is today. With technology, communications and global networking evolving so rapidly, corporations must restructure almost on an ongoing basis to keep up with the change. Some of the objectives of these restructuring efforts include erasing debt, evolving with trends and responding to regulatory changes in various industries.

Some corporations have branches or businesses they own that are producing marginal profit or even losing money. They may have purchased the company when it was doing well but trends shifted, or perhaps it was part of another merger in which they acquired the weak business along with a strong one. Whatever the reason, these parts of the business tend to be a drain on the corporate profits and corporate resources. Corporations may restructure in order to put their best resources into the parts of the business that make money and sell off or liquidate parts that don't.

Many corporations have debt that threaten the viability of the business because the stock fell, the price of materials rose or consumer demand faltered. These corporations must restructure in order to pay the debts. This often includes employee layoffs, the selling of assets and a reduction in benefits for employees who remain. The objective of this kind of corporate restructuring is to rope the debt to equity ratio back to a number where the corporation can survive.

Frequently a corporation's business model is based on a trend that has changed. For example, a construction company may have to alter its business model to creating or retrofitting buildings according to LEED standards. Likewise, a company whose business centered on telephones and faxes has to face the change in how the world communicates. These changes often require corporate restructuring, selling old assets to buy new and putting people who understand the new trends and technologies over those who have worked their way up in the old system.

Regulatory changes create a need for corporate restructuring. The deregulation of the banking industry, for example, meant banks could suddenly sell products such as insurance and could operate across state lines. This required a restructuring along with many mergers and acquisitions. Regulatory changes resulting from the financial crisis of 2009 are leading to other corporations' restructuring their businesses, particularly in financial services such banks, mortgage companies and credit cards.