Difference between External reconstruction or internal reconstruction?
External reconstruction and internal reconstruction are two methods used to restructure a company's financial statements. They are typically employed when a company is experiencing financial distress or significant changes in its business operations. While both methods aim to improve the financial position of the company, there are key differences between them.
External Reconstruction:
External reconstruction involves seeking assistance from external sources such as investors, creditors, or third-party agencies to restructure the company's financial position. It usually occurs when a company is on the verge of bankruptcy or facing severe financial difficulties. Here are some key points regarding external reconstruction:
1. Objective: The main objective of external reconstruction is to attract new capital or financial assistance from external sources to revive the company's operations and improve its financial standing.
2. Involvement of external entities: External reconstruction requires the involvement of external entities such as investors, creditors, or financial institutions. These entities provide financial support, expertise, or resources to help the company recover.
3. Changes in ownership: External reconstruction may involve changes in the ownership structure of the company. For example, existing shareholders may need to dilute their ownership stakes to accommodate new investors. In some cases, creditors may convert their debt into equity, leading to a change in control of the company.
4. Legal procedures: External reconstruction often involves legal procedures such as negotiations with creditors, court approvals, or the creation of a new legal entity. These procedures help to protect the interests of all stakeholders involved.
Internal Reconstruction:
Internal reconstruction, on the other hand, focuses on restructuring a company's financial position using its internal resources and operations. It is typically implemented when a company wants to streamline its operations, improve profitability, or address specific financial challenges. Here are some key points regarding internal reconstruction:
1. Objective: The main objective of internal reconstruction is to utilize the company's internal resources, strategies, and operations to improve its financial position without relying on external assistance.
2. Utilization of internal resources: Internal reconstruction relies on the company's existing assets, cash flows, and operational capabilities to initiate the restructuring process. It may involve cost-cutting measures, operational efficiency improvements, or strategic realignments.
3. Minimal involvement of external entities: In internal reconstruction, there is minimal involvement of external entities such as investors or creditors. The company primarily relies on its internal management and employees to implement the necessary changes.
4. No change in ownership: Unlike external reconstruction, internal reconstruction does not typically involve changes in the ownership structure of the company. The existing shareholders retain their ownership stakes, and the control of the company remains unchanged.
In conclusion, external and internal reconstruction are two distinct methods used to restructure a company's financial position. External reconstruction involves seeking external assistance, often involving changes in ownership and legal procedures, while internal reconstruction utilizes internal resources and operations without significant involvement of external entities or changes in ownership.
Difference between External reconstruction or internal reconstruction?
Internal reconstruction is alteration in the assets and liabilities of company while external reconstruction is the liquidation of existing company and selling of assets and liabilities to a newly formed company of generally same name and ownership.