Business Restructuring: Why you might need to restructure your business

No matter the size of your business, there comes a time when a change is needed. Whether you’re looking to expand or downsize, it’s important to consider when it might be appropriate to restructure your business and what the practical or tax implications could be.

Business colleagues discussing corporate restructuring in a meeting

What it means to restructure your business

The term “corporate restructuring” can be used to mean creating more shares in a company, seeking third-party investment, setting up a group of companies or merging 2 businesses together. It can also mean closing companies within the group or moving from a partnership to a limited company.

Alongside any legal or tax changes involved with a restructure, business owners must also consider the practical, operational changes that may affect the business.

Common Reasons For Business Restructure

The reasons for restructuring a business are variable. Generally, however, they often involve one of the following concerns:

  • Downsizing in line with the economic climate, market changes or falling demand
  • Relocating your business, such as moving the location of a production process or an entire office
  • Changes in management, such as the exit of a director
  • Gearing for an Exit
  • Changes in ownership for example management buyouts
  • Expansion to meet increased demand and an improving market share
  • Need to raise funding

Signs Your Business May Need To Restructure

Businesses have to be extremely agile when reacting to political, economical and market forces. In the crash of 2008 many businesses went out of business completely, others made redundancies, some merged with others to spread risk and reduce overheads.

Since the global financial crisis, optimism and confidence have returned in the SME market (at least until Brexit came along). Start-up companies can exploit opportunities to enter their market and may seek third-party funding from an early stage. Larger companies will still look to grow through acquisition or mergers.

Outside of growth strategy, businesses may also need to restructure to keep key employees or to implement a succession plan. Quite often in a SME business the owners may not be the best people to drive it forward as they become more interested in their exit from the business. There are many ways to use share schemes to incentivise employees and provide for the senior shareholders’ exit. For example, growth shares allow employees to take a share in the business once an agreed growth hurdle has been met:

  • Growth shares reward employees for delivering growth in company value by enabling employees to share in a proportion of that future growth.

Growth shares help to protect existing shareholders from dilution by ring-fencing the current value for them and are therefore an effective anti-dilution tool.

The importance of having a plan when restructuring your business

A business restructure is more likely to be a success if you take the time to fully consider the legal, commercial and practical outcomes.

No business opportunities are risk-free and any changes to the structure of a business are likely to have consequences. It is therefore imperative that before making any changes to shareholdings in a company or joining forces with a third party, the legal and taxation issues have been fully considered.

At AMD, our experienced commercial solicitors in Bristol are well versed in helping businesses make the right choices to restructure effectively. For more information on how AMD solicitors can help your business simply call our team on 0117 973 3989 or fill out our contact form and we will get back to you as soon as we can

This article is provided for general information purposes only and represents our understanding of the relevant law and practice as at the date of uploading. This article should not be relied upon as legal advice pertaining to any specific factual situation. Legal decisions should be made only after proper consultation with a legal professional of your choosing.

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