Internal Reconstruction vs External Reconstruction Differences

Differences Between Internal Reconstruction and External Reconstruction

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.

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

In this article, we will talk discuss top differences between internal reconstruction and external reconstruction.

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Internal Reconstruction vs External Reconstruction Infographics

There are many differences between internal reconstruction and external reconstruction. Let’s have a look at them –

 

Internal Reconstruction vs External Reconstruction – Key differences

There are many differences between internal reconstruction and external reconstruction. The key differences are mentioned below –

• Internal reconstruction needs a lot of time and statutory requirements to occur because in internal reconstruction the company has to take the permission of every stakeholder and also of the court. On the other hand, external reconstruction can be done immediately without any need of permission from the court.
• Both of these reconstructions ensure the change in financial structure. But since internal reconstruction doesn’t liquidate, things become difficult.
• In the case of internal reconstruction, the losses of the company can be set off against the future profit of the company. In the case, external reconstruction the losses of an old company can’t be set off against the profit of the new company.
• Internal reconstruction is done when there is a chance for the existing company to bounce back. External reconstruction is done to start the whole thing afresh.
• The accounting required for both internal reconstruction and external reconstruction are complex.

Internal Reconstruction vs External Reconstruction (Comparison Table)

Basis for Comparison between internal reconstruction and external recontruction	Internal reconstruction	External reconstruction
1.    Inherent meaning	IR is a restructuring method which doesn’t create a new company via liquidation.	ER is a restructuring method which 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 court	Required.	Not required.
4.    Existence	No new existence is formed.	New company is formed.
5.    Liquidation	Liquidation isn’t done.	Liquidation is done.
6.    Process	Very slow, tedious, and takes a long time.	Quick and swift, doesn’t take much time.
7.    Losses against profits	Can set off past losses against future profits.	Since a new company is established losses of old company can’t be set off against profits of new company.

Conclusion

Internal reconstruction 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 court in the case of external reconstruction.

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