What is equity restructuring in financial restructuring?

Financial restructuring is a process of reorganizing companies’ financial structure. Companies’ financial structure consists of both debt and equity capitals. Reorganizing financial structure can be from the asset side or liability side of the balance sheet.

Equity restructuring

In this restructuring, equity capital is reorganized by reshuffling shareholders’ capitals and reserves in the balance sheet. It is a complex process, as it involves law.

Methods

Some of the methods of equity restructuring are as follows −

• Repurchasing shares from shareholders to reduce liability to shareholders and reduction in capital.

• Waiving off dues of shareholders.

• Share capital consolidation.

• Writing down share capital in appropriate accounting entries.

Reasons

The reasons of equity restructuring are as follows −

• Overcapitalization correction.

• To support management stakes.

• Provide an exit mechanism.

• To increase efficiency.

• To erase accumulated losses.

• Maintain debt-equity ratio.

• Unrecognized expenditure writes off.

• To raise new finance.

• Revaluation of assets.