Benefits of Re-organization
Re-organizations are effected for various objectives, such as –
- Economies of scale
- Diversification
- Managing family split
- Enhancing market position
- Enhancing resource mobilization capability
- Access to newer markets / customers
- Access to newer technology
- Access to a wider product range
- Weakening or eliminating a competitor
- Tax benefits
- Encashment of value of brands or other intangible assets
- Reviving a weak or sick company
Re-organization Costs
Several costs go into a re-organization. Some of these are:
- Exchange Fees
- Fees of merchant bankers, valuation agencies, bankers to the issue, registrars, stock brokers and other intermediaries
- Value added Tax, octroi and any other such taxes levied by the central government, state government or municipal corporations
- Stamp duty (varies from state to state)
- Securities transaction tax
- Capital gains tax
- Other implications under income tax act, such as losing the tax-shield on accumulated losses or unabsorbed depreciation
- Costs associated with arranging meetings
- VRS and other re-structuring costs
At times, costs are more certain than the benefits. Some of the benefits may accrue after very long periods of time, or may accrue for a very short period of time. It is important to do a cost-benefit analysis before embarking on a re-organization.
