Naples Business Lawyers for Corporate Recapitalizations
Corporate recapitalizations can serve a variety of different purposes; and, when conducted correctly, they not only can avoid immediate tax consequences, but also potentially result in tax savings in the future. While recapitalization is not always necessary to achieve owners’ goals, when reorganizing a company’s capital makes business sense or serves to further the interests of the company’s owners, it can be an efficient and cost-effective way to achieve a desired outcome.
Why Do Companies Recapitalize?
There are a number of reasons why a company’s owners may choose to recapitalize. We represent closely-held corporations and their stockholders in recapitalizations undertaken for the purposes of:
- Reducing or eliminating capital gains or income tax liability
- Avoiding estate and gift tax liability
- Creating new classes of share to accommodate equity investors
- Improving company valuation
- Improving company debt-to-equity ratio
- Increasing liquidity
- Transitioning between equity and debt financing
- Preventing hostile takeovers
- Achieving other desirable consequences for the company or its owners
- Achieving a successful reorganization in bankruptcy
How Do Companies Recapitalize?
There are several methods for conducting a corporate recapitalization, with certain options being more fitting for some purposes than others. When we represent clients who are considering or preparing for a recapitalization, we explore all alternatives and offer recommendations that are appropriate to our clients’ particular business goals and financial needs. Some of these alternatives include:
- Buying back corporate shares and issuing new classes of shares
- Exchanging debt securities for equity investments
- Issuing stock for the purchase of debt securities
- Issuing debt securities and using the proceeds to buy company stock
- Issuing debt securities and acquiring shares or dividends from the purchaser
- Eliminating classes of shares (i.e. preferred shares) in order to enhance liquidity
- Issuing new classes of shares (i.e. non-voting shares) which can subsequently be transferred by the company’s existing owners
What are Alternatives to Recapitalization?
While recapitalization is an effective means to achieve a variety of different ends, it will not fix all problems in all circumstances. In addition to representing individual shareholders and corporate entities in recapitalization transactions, we also routinely provide representation for a variety of legal alternatives. Once again, the purpose of the transaction will dictate the options that are on the table; but, under appropriate circumstances, we have used tools and strategies including:
- Mergers, acquisitions and divestitures
- Formation of new entities
- Non-recapitalization corporate finance transactions
- Third-party loan transactions
- Revocable and irrevocable trusts along with other advanced estate planning tools
If you have questions about the benefits, limitations or drawbacks of performing a corporate recapitalization, we encourage you to get in touch. We have successfully represented numerous clients in recapitalizations and alternative transactions, and we can use this experience to help you choose the best path forward.
Schedule an Initial Consultation at Woods, Weidenmiller, Michetti & Rudnick, PLLC
For more information, please contact us to schedule a confidential initial consultation. To speak with a business attorney at our Naples law offices, call 239-325-4070 or request an appointment online today.