Corporate Reorganization in Texas
Businesses change over time, or at least they should. Corporations that seek to increase profit or maximize efficiency may need to restructure the way the company is organized in order to serve those goals. There are a number of different avenues for corporate reorganization, and the optimal approach depends on the nature of the business and the need for the change. Corporate reorganization can be an expensive, lengthy process, and it’s important to do so with advice from qualified corporate counsel. Below, we discuss the options for corporate reorganization in Texas. For help reorganizing your company in Texas or for assistance with other business law matters, call the seasoned Houston business law and entity formation lawyer Leigh Meineke of Leigh B. Meineke Law Firm.
Options for Corporate Reorganization
Depending upon the nature of your business, the market, and the circumstances surrounding your desire to reorganize, you could have several options for corporate reorganization. Reorganizing or restructuring may help your business obtain more funding, improve efficiency, enhance profit margins, or grow a larger client base.
Under the Internal Revenue Code, there are seven different types of corporate reorganization. These include:
- Merger and Consolidation. Mergers occur when two separate entities combine into a single surviving entity. Rather than one entity acquiring the other and turning the target into a subsidiary or absorbing the assets and liquidating, the two companies combine assets and liabilities and proceed as a single entity. The reorganization is structured as a merger when the companies combine and retain the name/identity of one of the two; i.e., Entity A acquires the assets and liabilities of Entity B, and they proceed combined as Entity A. Entity A and Entity B can instead consolidate into a new company, Entity C.
- Acquisition to Subsidize. A parent corporation can purchase another company with the intent to make the target company the subsidiary of the parent. The subsidiary would continue to operate under the corporate umbrella of the parent company. Acquisitions occur via the purchase of the target company’s stock. Typically, an important first step is to acquire a majority of voting shares.
- Acquisition to Liquidate. A parent may choose to purchase another company with the intent to liquidate the target. The shareholders of the target corporation become shareholders of the acquiring company.
- Transfers, Spinoffs, and Splitoffs. These types of reorganizations involve transferring assets between corporations. There are two categories: One method involves creating a spinoff or split-off corporation. The other involves transferring some or all assets of a company that must file for bankruptcy.
- Recapitalization. Recapitalization involves corporate shareholders exchanging stocks and securities for new stocks or securities. The focus is on reorganizing the corporation’s capital structure.
- Identity Change. This type of reorganization involves changing the business’s identity, form, or place of organization (typically, from one state to another).
Corporations struggling with debt may need to file for bankruptcy as a part of the restructuring process. Chapter 11 bankruptcy is known as “reorganization” bankruptcy, which involves establishing a plan for the repayment of certain debts over time. Bankruptcy can result in the continuation of the business with discharged debt, sale of the business, or merger with another corporation on the other side of the bankruptcy. A Chapter 11 bankruptcy may also result in the liquidation of the corporation, shutting down the debtor’s operations and selling off remaining assets in order to pay off debts. Occasionally, creditors can force a business into an involuntary Chapter 11 bankruptcy based on defaulted debts.
If you need legal assistance with a Texas business law matter, contact a knowledgeable and effective Texas business formation and corporate reorganization lawyer at the Houston offices of attorney Leigh Meineke of Leigh B. Meineke Law Firm by calling 832-706-0244.