The following is the main difference:
1. No new company is formed in case of Internal Reconstruction. A new company is formed in case of External Reconstruction.
2. In case of Internal Reconstruction, no company is liquidated. In case of External Reconstruction one company is liquidated
3. Internal Reconstruction requires court’s confirmation. But External Reconstruction can be affected without court’s confirmation
4. Internal Reconstruction is a slow and tedious process. But External Reconstruction can be carried out easily
5. In the case of Internal Reconstruction, the company is able to set off its past losses against future profits. Whereas, in the case of External Reconstruction, the past losses of the old company can’t be set off against the future profits of the new company.