Reorganization is: 1) The implementation of a business plan to alter a corporation’s structure or finances because of financial duress, a desire to change strategy, or a government order. It may involve, among other tactics, changes in assets and liabilities; changes in ownership structure or corporate control; consolidating, selling, or eliminating departments or product lines; replacing or discharging employees; or renegotiating debt agreements.
More specifically, the Internal Revenue Code § 368 defines seven types of reorganizations: (A) a statutory merger or consolidation; (B) an acquisition of one company’s stock by another corporation, with the acquired company becoming a subsidiary by the acquiring corporation; (C) an acquisition where the acquired corporation must liquidate, with shareholders of the acquired corporation becoming shareholders in the acquiring corporation; (D) spinoffs or split-offs; (E) recapitalization; (F) a change in identity, form, or place or organization; (G) a Chapter 11 asset transfer. For an example of recapitalization, in 2013, Dell borrowed bank loans to purchase public stock to take the company private to give the founder, Michael Dell, more control over the company’s growth. As another example, in the 1970s–80s, Bell Telephone, now AT&T, faced antitrust regulation and settled to restructure by spinning-off their monopoly into seven regional telephone communication providers.
2) See Chapter 11 Bankruptcy and Small Business Reorganization Act.
[Last updated in April of 2021 by the Wex Definitions Team]