what is reconstruction of a company? explain the resons of reconstruction? don't spam...
Answers
Reconstruction refers to the transfer of company or several companies business to a new company. This therefore means that the old company will get put into liquidation ,and shareholders will therefore agree to take shares of equivalent value in the new company.
When a company is suffering losses for the past several years and facing financial crisis, the company can sell its business to another newly formed company. Actually, the new company is formed to take over the assets and liabilities of the old company. This process is called external reconstruction. In other words, external reconstruction refers to the sale of the business of existing company to another company formed for the purposed. In external reconstruction, one company is liquidated and another new company is formed. The liquidated company is called "Vendor Company" and the new company is called "Purchasing Company". Shareholders of vendor company become the shareholders of purchasing company.