Enterprise reorganisation is a complex but often necessary process that allows a company to adapt to market changes, improve management efficiency and optimise business processes. Organisations are forced to look for new ways to strengthen their positions in modern globalisation and high competition conditions. Mergers, acquisitions, divestitures, and other forms of reorganisation can become a powerful tool for achieving business strategic goals.
This article will examine the main types of reorganisation, their legal and economic aspects, key advantages, and possible risks for enterprises.
What is the Reorganisation of Enterprises
A reorganisation is a change in a company’s organisational and legal form or structure without terminating its activities. It is usually associated with improving the company’s performance, increasing its efficiency, and adapting to the market. Reorganisation can be voluntary or compulsory.
Forms of Reorganisation
- A merger is the combination of two or more companies into one.
- Joining is the takeover of one company by another.
- Division is the creation of new companies based on one company.
- Allocation is the creation of a new company through the transfer of some of the assets and liabilities of the original company.
- Transformation is a change in the organisational and legal form of a company.
Legal Aspects of the Reorganisation
- The Civil Code and other laws regulate it.
- Requires state registration of changes.
- Includes notification of creditors and other interested parties.
Stages of Reorganisation
- Deciding on reorganisation by the owners or management bodies.
- Development and approval of the reorganisation plan.
- Notification of government agencies and counterparties.
- Conducting inventory and asset valuation.
- State registration of changes.
Financial and Tax Aspects
- 1. Determination of tax consequences.
- 2. Redistribution of assets, liabilities and capital.
- 3. Possible tax changes.
Possible Risks and Consequences
- Possible loss of control over the business.
- Financial and legal difficulties.
- Changing working conditions for employees and partners.
Alternatives to Reorganisation
- Sale of the company.
- Optimisation of business processes.
- Conclusion of strategic partnerships.
Advantages of the Reorganisation
Here are some of the main advantages of reorganising businesses:
1. Business process optimisation
Reorganisation allows you to eliminate redundant or inefficient structures, improve communication between departments, and speed up decision-making. It can also lower costs and improve overall productivity.
2. Increased flexibility and adaptability
Restructuring a company helps it better respond to changes in the external environment, such as new market conditions, legal requirements, or technological changes. This allows the company to adapt quickly to new challenges.
3. Improving financial performance
Reorganisations often improve financial stability through more rational resource allocation, improved asset management, and reduced debt obligations.
4. Reducing operational risks
Due to the redistribution of functions after the reorganisation, the company manages to reduce the risks associated with dependence on a single business process or department and increase the security of doing business.
5. Increasing competitiveness
By optimising the company’s structure and improving processes, the company can become more competitive in the market by offering products or services that respond more quickly to customer needs.
6. Improving the corporate culture
Reorganisation can help change a company’s working environment by reducing bureaucracy and increasing employee motivation. It is often accompanied by improved relationships between management and staff, increasing loyalty and productivity.
7. Increasing the level of innovation
Structural changes and optimisations can create an enabling environment for introducing new ideas, products, or technologies, promoting innovation and improving product or service quality.
8. Risk management and tax consequences
Reorganisation can be used to minimise tax liabilities and optimise the ownership structure of assets and risks associated with specific legal or financial aspects of the business.
Possible Risks of Reorganisation
Before reorganising an enterprise, you must contact an experienced lawyer and weigh the risks. Here are some examples of possible risks:
1. Legal risks
Legal difficulties, such as law violations or incorrect paperwork, may accompany the reorganisation process. Failure to comply with all requirements may result in judicial and administrative consequences, fines, or liquidation of the company.
2. Financial risks
Reorganisation may require significant financial expenses for the services of consultants, lawyers, and tax experts. There is also a risk of additional debts and obligations that may not be considered during the reorganisation process.
3. Risks for employees
Changes in the company’s structure may lead to layoffs, transfers of employees, or changes in working conditions. They can also cause employee dissatisfaction, loss of qualified personnel, and a decrease in the moral climate within the organisation.
4. Tax risks
Improper tax optimisation during reorganisation can lead to tax consequences, including additional tax liabilities or penalties. Failure to account for all tax consequences may affect the company’s financial condition.
5. Reputational risks
Changes in the corporate structure may cause dissatisfaction among customers, suppliers, and partners. A loss of trust from key players in the market can affect a business and lead to lower sales or even market loss.
6. Management risks
The redistribution of functions and responsibilities during the reorganisation can lead to inefficiency in management and problems with coordination within the company. This is especially true in mergers and acquisitions, when executives from different organisations may encounter different corporate cultures.
7. Risks to technology and processes
Integrating systems, technologies, and procedures may be difficult if the reorganisation involves combining different business processes. A failed integration can lead to operational failures and reduced productivity.
8. Liquidity risks
During the reorganisation, the company may face a shortage of liquid funds, especially if it is necessary to fulfill obligations to creditors or partners due to changes in the business structure.
Peculiarities of Reorganisation of Enterprises in Belarus
In Belarus, the process of reorganising companies is regulated by the state. In particular, the state registration of the reorganisation and the liquidation of the reorganised companies are required. Government agencies also establish the procedure for transferring the property of reorganised companies.
The types of reorganisation include:
1. A merger in which the rights and obligations are transferred to a new company.
2. Affiliation, during which the rights and obligations of the affiliated company are transferred to the parent company.
In the case of a merger and affiliation, the rights and obligations are transferred based on a transfer act.
3. Division, when a company is divided into several new ones, to which the rights and obligations under the separation balance sheet are transferred.
4. Allocation, in which one or more new companies are separated from the existing one and receive rights and obligations under the separation balance sheet.
5. Transformation is when a company of one organisational and legal form is transformed into a company of another form. For example, a limited liability company may become a joint-stock company. In this case, the rights and obligations of the LLC are transferred to the JSC through a transfer deed, except those that the JSC cannot fulfil, for example, the purchase of shares in the authorised capital, since the authorised capital of the JSC is not divided into shares.
Peculiarities of Decision-Making on the Reorganisation of Enterprises
The company’s management body makes the decision to reorganise the company: the general meeting of participants, the owner of the company’s property, or another body authorised to make such decisions by the company’s articles of association.
Completion of the company’s reorganisation
It is possible to talk about an enterprise’s reorganisation only after the state registration of new companies formed during the reorganisation process.
In the case of an enterprise joining another company, the reorganisation is considered completed after an entry in the Unified State Register of Legal Entities and Individual Entrepreneurs, stating the liquidation of the affiliated enterprise (termination of its activities).
Protection of Creditors’ Interests in the Reorganisation of Enterprises
When reorganising enterprises, their management bodies, which have decided on the reorganisation, are required to notify the enterprise’s creditors in writing. There is no deadline for such notification.
Creditors of reorganised enterprises have the right to demand early fulfilment of obligations, termination of obligations, or compensation for losses.
Restructuring of the Company’s Debt and Reorganisation
Enterprises with debts to creditors may include representatives of these creditors in their management bodies or introduce them to the owners.
If a company has a debt to a bank, it may request a loan debt restructuring.
In addition, debt restructuring by the creditor is possible. A creditor company with debtors may agree with a financial institution that acquires debts by assigning the right of claim. This organisation issues bonds for the amount of transferred claims and transfers the proceeds from their sale to the creditor company. In exchange, the creditor transfers the right to claim these debts to the financial institution. This financing process is called “securitisation.”
Reorganisation of the Authorised Capital and Form of Ownership
Capital may be reorganised while reorganising the company’s structure (merger, division, affiliation, spin-off, transformation). This is especially important during a company’s transformation, when it changes its organisational and legal form, for example, going public.
Capital reorganisation can also occur outside of traditional enterprise reorganisation processes. For example, it can involve expanding the company’s ownership circle, attracting investors, redistributing shares in the authorised capital, or selling shares.
Reorganisation of Business Processes of the Enterprise
Business reorganisation includes not only mergers and acquisitions but also optimisation of business processes. This need arises when a company needs to adapt to modern technologies and changes in consumer preferences. Let’s look at examples of successful and unsuccessful process reorganisations in well-known companies that, at least for a while, were leaders in the global market.
1. One of the most striking examples of successful business process reorganisation can be found in Zara, which has been actively modernising its logistics for several years. In response to the market’s needs and to increase the speed of product delivery, the company has implemented a system that allows new models to be produced in 15-20 days instead of the previous few months. Using information technology to monitor and predict consumer preferences has enabled Zara to effectively manage inventory and reduce surpluses, leading to significant cost reductions.
2. Another example is Toyota’s reorganisation of business processes, which has developed Lean Manufacturing. This approach is based on continuous process optimisation, eliminating unnecessary steps and minimising costs. Introducing this concept has allowed Toyota to significantly improve production performance and product quality and accelerate the launch of new models on the market.
3. Starbucks has also implemented a reorganisation aimed at improving customer service. Introducing new technologies such as mobile ordering and payment applications and improved supply chain and logistics have significantly accelerated the service process and reduced waiting times. It has allowed Starbucks to increase its competitiveness and improve customer engagement.
4. Another example is Amazon’s reorganisation of business processes, which introduced robotic warehouse automation. It significantly accelerated the packaging and shipping process, increasing productivity and reducing labour costs.
These examples show how reorganising business processes improves quality, reduces costs, and increases a company’s efficiency.
Conclusion
Enterprise reorganisation is a complex and multifaceted process that requires careful attention and strict compliance with all legal and financial regulations. During the changes, various legal, organisational and tax issues may arise that require professional intervention. To avoid possible mistakes and minimise risks, consulting with experienced lawyers with in-depth knowledge of corporate law is important. Proper legal support at each reorganisation stage will help significantly simplify the process and ensure the successful adaptation of the company to new conditions.
