In Russian law, Corporate Restructuring refers mostly to the actual dissolution of a company followed by “legal succession” resulting in forming one or more new entities. Sometimes one corporate is dissolved by forming several ones. This is basically the process of transfer of rights and responsibilities from one company to another.
When an entity is restructured and transfers all its rights and responsibilities to a new one, ultimately a new structure is created or the ownership structure of the previous company changes fundamentally. Restructuring and Dissolution are actually similar – in both cases it results in the company being excluded from the Unified State Register of Legal Entities after the procedure is done.
Such transformations often take place in business. For example, this has helped a lot of people avoid the hard procedure of bankruptcy or liquidation.
FORMS AND STAGES OF THIS PROCESS
There are two ways for corporate restructuring: forced and voluntary.
Voluntary restructuring starts after a shareholder meeting or a designated person (pursue to the Articles of Association) makes such a decision. For example, in an LLC, a General Meeting of Shareholdes is responsible for it.
Forced corporate restructurings are commenced by applicable state authorities. In most cases, the Federal Tax Service demands it. It may also be commenced by the antimonopoly authority under a court order.
Here are the existing corporate restructuring types:
• spin-off (the parent company remains),
• takeover (the parent company also remains),
In a takeover, one company absorbs another. The “absorber”, that is, the acquirer, takes all the rights and responsibilities of the target, acquiree.
Spinoff refers to the procedure during which one or several entities “bud off” from one holding company. They have new company details, including registration number (analogue of CIN in the US), taxpayer identification number, bank account details, etc. A spin-off balance sheet is created, and each new entity gains its share of rights and assumes its share of obligations from a restructured corporate.
This way implies several companies becoming one and ceasing to exist in the previous form. The new entity is given all the rights and responsibilities of the merged ones. This procedure is often practiced to strengthen the business position on the market.
This way resembles spin-off, but they have some significant differences. All companies that have undergone spin-offs, including the “old” one, continue operations. A split-up results in the restructured firm fully shutting down all its business operations.
Corporate restructuring through conversion basically means changing the business type organizationally and legally. The new company inherits all the rights and responsibilities that belonged to the previous one.
RESTRICTIONS AND DIFFICULTIES
Under Russian law, a corporate restructuring may be registered with the state no earlier than possible time to appeal against the decision made is over. Note that different cases of corporate restructuring have their own features. For instance, if it comes to a faith-based organization, it is prohibited to change its type.
Special cases are corporate restructurings implemented by bad faith businessmen to avoid meeting their debt obligations. To counteract such fraudsters, the Tax Code provides for well-defined rules for another’s loss record.
There are many other complexities that can make a restructuring impossible or inefficient. To avoid them and get the expected effect, seek help of professionals!
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