How to Restructure your Business Legally
Restructuring your business can be an exciting time, but it’s important that you navigate the legal aspects properly. Restructuring involves making significant changes to the structure, ownership, or operations of your business, and we’re here to help you understand the process and comply with the law. Read on to find out how to restructure your business legally in the UK.
What Is a Company Restructure?
But first, let’s discuss what restructuring actually is. A company restructuring is the process of making substantial changes to the organisation, operations, or ownership structure of a business. A restructuring aims to improve efficiency, adapt to market conditions, enhance profitability, or achieve specific business objectives. it can also involve various aspects like changing legal entities, merging with or acquiring another business, or restructuring debt.
Common Reasons for Restructure
Company restructures are common, but can also be complicated. The most common reasons for restructuring a business include:
Businesses may undergo restructuring to streamline operations, eliminate redundancies, and improve the overall efficiency of the business.
Expansion or Diversification
Companies looking to expand into new markets, diversify their product or service offerings, or enter strategic partnerships may choose to restructure.
If a business is facing financial challenges or has accumulated substantial debt, restructuring can provide a path to regain financial stability.
Merger or Acquisition
Restructuring through mergers or acquisitions can help businesses expand their market share, access new technologies, or enter new geographies.
Change in Legal Structure
A change in legal structure, such as converting from a sole proprietorship to a limited company, may be driven by factors such as liability protection, tax advantages, or facilitating future growth.
Adding and Removing Partners
Restructuring may involve admitting new partners to the business or removing existing partners to adjust the ownership and management structure.
Modifying Ownership Interests
Changing ownership interests within the company can be done through restructuring, allowing for a redistribution of shares or equity among existing shareholders.
Changes to Contracts
During a restructuring, businesses may need to review and update contracts with suppliers, customers, or partners to reflect the new structure, ownership, or operational changes effectively.
The Legal Restructuring Process
Define Your Goals
Before starting your restructuring, it’s important to clearly define your objectives. What is the purpose of the restructuring? Understanding your goals will help you shape your approach and ensure you comply with the legal requirements. Whether it’s relocation, downsizing or expansion, or ownership changes, this must be clearly defined before beginning the process.
Understand Your Finances
If your business is facing financial difficulties, restructuring can help improve its overall position. Assessing your cash flow is crucial in determining the best approach for the reorganisation.
Analyse your business expenses and distinguish between essential and non-essential costs. Evaluate your assets and consider options like outsourcing or downsizing. Adjusting your staff structure may also be necessary, but be aware of the legal considerations and associated costs involved in any redundancy process. When done strategically and in compliance with the law, restructuring can effectively streamline your business operations.
Get Input from Stakeholders
Effective communication is extremely important during a restructuring process. You should engage in consultations with all those who will be impacted, both as a group and individually.
If redundancies are being considered, consult with all affected staff in a similar manner. If your business has a recognised union, it’s essential to involve them, particularly if there are collective agreements in place. Also, the number of staff affected by the restructuring may require prescribed periods for consultation. Gathering input from those affected can provide valuable insights and information to consider.
Decide The New Structure
Keeping these considerations in mind, you can determine the best way to restructure your business. In most cases, it’s important to seek guidance from corporate, commercial, and employment lawyers who can help you achieve your desired goals legally while assessing the pros and cons of the new structure. If necessary, consult financial advisors as well to ensure you make informed decisions.
Communicate The Plan
Effective communication is crucial for a smooth restructure. Engage openly with staff to avoid future problems. When dealing with redundancies, follow the stages of selection, consultation, and alternative employment consideration. Seek legal advice for guidance. External communication is important too, as it helps prevent negative publicity and loss of business. Openly explaining the reasons behind a large-scale restructuring can help avoid public criticism.
Monitor and Adjust
Maintaining open communication with affected staff and staying vigilant throughout the process will build trust in your business and will ensure you are compliant during the restructuring efforts. Be prepared to be flexible and adjust as needed. Expect some resistance to change and different outcomes. By following these steps and managing the restructuring with careful consideration for all parties involved, it can create future opportunities for both the business and its employees.
How to Ensure Legal Compliance When Restructuring
Restructuring your business involves making significant changes, and it’s crucial to ensure that you navigate the process legally. By following these guidelines, you can avoid illegal practices and ensure compliance with relevant laws and regulations during the restructuring process.
- Seek legal advice. Always make sure you consult with experienced employment lawyers who specialise in restructuring. They can provide valuable advice and guidance to ensure you’re compliant.
- Understand employment laws. Although legal advice is important, it’s also essential that you familiarise yourself with employment laws and regulations that govern employee rights.
- Follow correct procedures. If redundancies are part of the restructuring process, ensure you follow proper procedures including using a fair selection process, appropriate notice periods, and redundancy payments required by law.
- Keep documentation. Maintain thorough records and documentation related to the process like minutes, communications, consultation details, and agreements reached.
To avoid any legal complications during the restructuring of your business, you should follow the steps and tips outlined in this blog. By adhering to these guidelines, you can navigate the restructuring process legally and minimise the potential risks and legal challenges.
If you have any questions or need some expert legal advice, simply get in touch with us today and a member of team will be on hand to help you.Back to News