What is recapitalization?
Recapitalization is a process in which the amount of debt and assets of a particular entity is regrouted to meet the financial goal. The aim may be to reduce the tax amount owed from assets in hand or as part of the reorganization to prevent bankruptcy. Although the idea of recapitalization is usually associated with businesses, the same general concept can be used for non -profit organizations, financial institutions such as banks or mortgage companies, and even individuals.
There are several reasons why recapitalization can be an attractive option. With companies that sell goods and services to the general public, one of the motivations would be to strengthen the financial image of the company in anticipation of expansion. This may include something as simple as replacing preferred stock options with bond problems to minimize tax burden. The restructuring of the relationship between debt and its own capital at present may be possible in order to reduce future obligations and divert TYTE funds directly to the expansion projects that the company will strengthen over time.
Business can also undergo recapitalization as a means of avoiding bankruptcy. With this application, the way the company spends money is changed so that the company can secure funds for operation until it is possible to re -realize net profit. This may mean cropping expenditure in some areas and at the same time to increase it in others, to maintain lower stocks to reduce the total tax burden, and any other strategy that will enable business to appreciate its current debt obligations.
Banks and other types of financial institutions can use the recapitalization process. Recapitalization of the bank may occur when the entity acquires or merges with another similar entity. Collective sources of new entities, as well as collective commitments are reorganized to be the new bank placed to the best possibleThe financial situation. Bank recapitalization may also take place in an effort to resist an attempt to take over or prevent potential failure or serious restrictions on operations.
With any type of recapitalization plan, it is extremely important to keep in mind specific goals. To achieve these goals, a feasible plan will include the establishment of a number of action items that will help the entity achieve these goals in logically progressive phases. The same action items will also provide a system of inspections and balance that allow the reorganization process to be evaluated and adjusted if necessary.