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Corporate Restructure – Different Ways of Changing the Shape of the Business.

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Throughout the life of a company, its financial and legal structure will be reviewed and adapted to the needs of the business.

It will be necessary for business owners, from time to time, to change the structure of the company and or group, due to investments, refinancing or exit of shareholders or partners.

The change of structure can be introduced in various ways and this blog will look over the main characteristics of the different options available.

The first option is a demerger. A demerger is especially important for companies that pursue different avenues of business. Multi-disciplinary companies will have the opportunity to demerge and create a group, all still existing under the same umbrella company. This can be beneficial for risk allocation and streamlining of the business, but it can also help with marketing and insurance. Another important aspect in the separation of the business will relate to a more commercial aspect, which is the independence and the focus that the singular companies will be able to stream towards a single market.

The Companies Act 2006 does not specify a procedure that can be followed, but the most chosen transactions are the declaration and payment of dividends by way of assets or the incorporation of a holding company which will be the holder of the various companies under the umbrella structure.

The purchase of the entire issued share capital or assets of a company is another option that should be taken into consideration. Both transactions mentioned above achieve the same commercial result even though the transactions are per se dissimilar.

Advantages and disadvantages of both procedures will need to be weighed regarding the specific circumstances of the case, but the final result will be the purchase of a company that will be an additional business to the potential existing structure. In both transactions, the buyer will take control of the target company assuming the responsibilities and liabilities of the business itself.

A reduction of capital is another resort that can be utilised for the reorganisation of a company.

This transaction, will reduce the shares and capital in the target company down to zero and subsequently the reserves created will be used in a share exchange between a newly incorporated company and the shareholders of the target. This will transfer the shares owned by the shareholders of the target to a new holding company, which will issue new shares to the shareholders.

The creation of new classes of shares is another option that can be adopted for a less drastic change in the company. The shares that are created and so allotted in a company can attract different rights, depending on the class and the specifics identified in the Articles of Association of the company.

There is no statutory guidance on the rights that should be attached to specific classes of shares, but the main differences relate to voting rights, rights to dividends and rights for the return of capital in winding up proceedings. The rights attached to each class of shares will be exercisable by the shareholders and will create different classes of shareholders.

One last option that should be taken into consideration is the potential buy-back of shares from the company itself. Through this process the company can repurchase the shares at any price using the distributable reserves of the company. The shares bought back are cancelled, reducing the issued share capital by the nominal value of the shares that are deleted. The effect of this transaction will increase the value and percentage of shareholding of the other shareholders.

This transaction is valuable for the exit of a shareholder or of a holding company involved in the business structure.