What it is:
Reorganization may refer to the rehabilitation of a company's finances pursuant to a bankruptcy. It can also refer to any process that affects the tax structure of a corporation. In addition, reorganization may refer to a merger or acquisition or sale of a company that changes the ownership, stock, or legal and management structure.
How it works/Example:
Reorganization is a formal court-supervised process of restructuring a company's finances after a bankruptcy. In accordance with bankruptcy laws, specifically Chapter 11, a company is given protection from creditors during the time period when the company proposes and a bankruptcy court reviews and approves a specific reorganization plan. The reorganization is intended to repay creditors to the maximum extent possible and to restructure the company's finances, management, and operations to prevent the same problem from arising again.
A company may reorganize itself, including its legal or corporate structure to take advantage of existing or new tax regulations.
A merger or acquisition of a company may result in a reorganization of the company ownership, equity structure, management, and operations to take advantage of the efficiencies of new management, new technologies, and new capital assets.
Why it matters:
Reorganization is an important step for a business since it has the potential to open up new opportunities, increase efficiencies and profits, and give legal and financial protection during difficult times.