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Are you considering setting up a new holding company or some subsidiaries? Perhaps you’re considering how to satisfy certain debts where you don’t have the cash upfront. Or maybe you’re about to bring in some capital through external investment. All these circumstances may result in a restructure of your company through changing:

  • the share ownership; or
  • your broader corporate group.

This article sets out various methods to restructure your company depending on your goals and circumstances.

Restructuring Your Corporate Group

You may be operating your business out of a single company. However, as your business matures or the risk profile of your business changes, you may want to undergo a corporate restructuring. You can do this by setting up new entities which will together form part of your corporate group.

Setting Up a Holding Company

A way that you can mitigate risk in your business is through your corporate structure. A key way of doing this is to isolate your trading risk in a separate company from the one which owns the business’:

You can achieve this by having a:

  • holding company which owns the business assets and IP; and
  • subsidiary, that the holding company owns.

This subsidiary will be the operating company through which you run your business activities.

This means that if the operating company is performing poorly or becomes insolvent, the business’ assets and IP is safe in the separate holding company.

To set up a holding company, you will need to register a new company with the Companies Office. You and any other shareholders will hold shares in this new holding company. You then need to transfer your shares in the original company to the new holding company, so that the original company becomes a wholly owned subsidiary of the holding company.

When you’re considering this restructure, it is important to obtain tax advice to understand: 

  • what the potential tax consequences are;
  • whether any relief is available; and
  • whether the potential tax implications outweigh the benefit of any such structure.

Setting Up Subsidiaries

As your business grows, you may also want to set up subsidiaries through which to run various business operations. If you have different arms of your business which have their own risk profile, it is useful to separate these business operations in separate entities.

This new structure means that the risk of one business does not infect the other. It will also make it easier in the future if you want to sell one arm of the business, without affecting the others.

To set up a subsidiary, you will need to register a new company with the Companies Office. In most instances where you are setting up a subsidiary, you will register it with your holding company as the sole shareholder. You will need to consider who the directors of the subsidiary should be. It may have:

  • the same directors as your holding company; or
  • other directors who are better placed to run that arm of the business.

Once your subsidiaries are established, you may want to have your subsidiaries form part of a consolidated group for tax purposes to make tax reporting for your various entities easier.

Restructuring to Satisfy Debts

If you have creditors to whom you owe money, you may be able to negotiate with those creditors to restructure the debt. 

For example, enter into deferred payment terms, or agree to a payment plan.

Alternatively, you may negotiate to restructure that debt into equity. This means that rather than repaying the creditor in cash, you issue shares in the company to that creditor of equivalent value in exchange for that creditor forgiving the debt. 

For example, if your company owes $10,000 to a lender, you may negotiate with the lender to convert that debt into equity by issuing shares to the lender worth $10,000.

Before issuing shares as part of an equity restructure, you should check your company’s governing documents to confirm what corporate approvals must be passed before those shares can be issued as part of a restructuring process. You must then record the share issue in the company’s share register and file a notice of the share issue with the Companies Office within 10 business days.

Restructuring for an Investor or Purchaser

You may also restructure your company as a result of an investor or a purchaser buying shares in the company. 

This may take the form of the company issuing new shares to an investor in order to grow the capital of the company. Or, it may be as a result of certain shareholders in the company selling their shares to a new purchaser. 

If, as a result of the share sale or issue, the company will be restructured such that a substantial portion of its ownership will have changed, the company should consider whether this will trigger any consequences under its existing contracts, or whether any consents from third parties are required. 

For example, if your company owes money to a lender, that lender will be sensitive to your company’s obligations to it and may not want your company to be restructured and for the ownership of the company to substantially change without its knowledge or consent.

Key Takeaways

Restructuring your company involves the share ownership of your company changing or the changing of your company’s broader corporate group. There may be a number of reasons why you may want to do this, including:

  • for asset protection for your business;
  • to satisfy debts owed; or
  • to bring in new capital into the company.

The process to do so, and the legal and commercial factors to consider, will vary depending on your goals and intentions. If you would like legal advice as to how you can restructure your company, contact LegalVision’s New Zealand business lawyers on 0800 005 570 or by filling in the form on this page.

FAQs

What does it mean to restructure your business?

Restructuring your business involves making changes to your legal and operational structure, such as setting up holding companies, establishing subsidiaries and changing ownership.

Why would a business restructure?

A business may restructure for many reasons, including to mitigate risk, restructure debts or during a change of ownership.

What is a subsidiary company?

You may seek to restructure your business by setting up subsidiaries through which to conduct your various operations. This helps to separate different risk profiles into different entities, so that your other subsidiaries remain stable if one fails.

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