Difference Between Internal and External Reconstruction

Internal vs External Reconstruction Differences

Internal reconstruction is a method of corporate restructuring where an arrangement is made by the company of the organization where in changes in the assets and liabilities are made to improve the financial position without liquidating the company or transferring the ownership to external party, whereas external reconstruction is the one where an existing company is liquidated and taken over by another newly formed company and the transfer of assets and liabilities takes place, and the same is considered similar to amalgamation.

Every 20 years Buddhist temples are reconstructed. The idea of reconstruction is to create something new that would serve the world better. The approach is similar when it comes down to internal and external reconstruction.

When businesses get started, they’re not perfect. The founders learn as they grow. As a result, it becomes important to sometimes reconstruct the existence of the businesses. Some completely change the idea of business and create a new one. Some prefer to stick to the old and reconstruct the internal processes.

Internal Reconstruction vs External Reconstruction

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No matter what sort of reconstruction it is, it’s important to renovate, recreate, and reassume the business processes and visions as businesses grow.

Internal vs External Reconstruction Infographics

Internal Reconstruction vs External Reconstruction

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Key Differences Between Internal and External Reconstruction

Comparative Table

Basis for ComparisonInternal reconstructionExternal reconstruction
1. Inherent meaningIR is a restructuring method that doesn’t create a new company via liquidation.ER is a restructuring method that creates a new company via liquidation.
2. Application It is done to ensure an inner re-arrangement of financial structure.It is done to form a new company.
3. Approval of courtRequired.Not required.
4. ExistenceNo new existence is formed.A new company is formed.
5. LiquidationLiquidation isn’t done.Liquidation is done.
6. ProcessVery slow, tedious, and takes a long time.Quick and swift, doesn’t take much time.
7. Losses against profitsIt can set off past losses against future profits.Since a new company is established losses of the old company can’t be set off against the profits of the new company.

Conclusion

Internal and external reconstruction are both valid for the companies that want to reconsider their approach and future strategy. And both of these depend on the decision and the permission of the stakeholders involved in the whole process.

However, both of these processes are much complex than they are perceived. But if you want to start afresh and your stakeholders are with you, you can be better off by taking the path of external reconstruction since no permission is required from a court in the case of external reconstruction.

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