Paul Kelly, Director and Solicitor, Business Structuring and Transactions team, KPMG Law, discusses the challenges of global entity reduction projects. Many businesses will have seen expansion and acquisitions over the years, which will have generated value but can often cause large and inefficient group structures.
These structures carry a ‘cost to exit’ burden. This can range from £10,000-£30,000 per entity, per year – so these are significant costs that don’t support revenue generation. If you then factor in ‘shadow’ costs, like increased tax scrutiny, greater demands on management time, and the risk of unknown liabilities, this can become a big risk for directors.
The solution to these issues, is a Legal Entity Reduction (LER) project.
When deciding to undertake an LER project, we offer three pieces of advice:
- Be bold. Consider placing every group entity under the spotlight of the project and ask some challenging questions that justify their reason to exist. Don’t just focus on the dormant entities.
- The quickest route to risk reduction is often found by eliminating entities that were bolted on through acquisition. That’s usually where there are issues around corporate memory or historic liability.
- Send a strong message to the business and compel people to act. By combining that with a clear plan that identifies some quick wins and uses technology, you’ll generate real momentum, which is key to success.
Entity reduction projects can be complex, but they offer a quick and compelling return on investment. Please get in touch if you’d like to hear more about our experiences.