A group reorganisation generally involves the transfer of assets from one group company to another.

Within a group structure, every company has a separate bank account to administer, along with their individual VAT returns, confirmation statements, and year-end accounts, resulting in unnecessary costs.

You may have found that, over time, these entities are no longer as profitable as they once were, or the initial reasons for having a separate company within a group no longer remain.

A corporate simplification may be what your business needs to reduce costs, streamline its structure, and improve operations.

The benefits of simplifying your company structure

Reducing complexity by eliminating legal entities which do not provide economic benefits to the group could be advantageous to your business model for the following reasons:

• Costs associated with the upkeep and maintenance of a large and complicated structure consisting of various companies will be considerably reduced.
• You can unlock the potential for your business to transform by removing unnecessary barriers to growth.
• Accountability is improved because a more streamlined structure will enhance the visibility of risks faced by a business and enable these to be dealt with more efficiently.
• The process of liquidation is a proven tool for addressing legacy contingent liabilities and concluding them.
• A greater proportion of senior management’s time and resources can be spent focused on the key value creating activities of a business.
• Simplifying your group also makes it easier to implement new solutions and innovate with technology.

Why should I streamline a group structure?

Some group structures can be too complex for their own good, and reducing this complexity seems the obvious answer.

A needlessly complicated group structure can bring significant additional costs to a business, takes up a large proportion of management time, and can also have an impact on how the group is viewed by HMRC.

A complicated group structure leads to a higher chance an HMRC enquiry will be launched against a business, potentially costing money, time, and causing a great deal of stress.

Streamlining a group structure may also be an early step towards selling the group, or at least part of it.

Simplifying the corporate structure will likely make it more attractive to buyers if you are looking to sell your business.

Also, following an acquisition, it may be necessary for the acquiring group to move the purchased assets around its group to ensure they are in the most appropriate subsidiary.

For instance, this may involve the transfer, which can be known as a ‘hive-up or hive down’, of businesses to other group companies, or the target group or company being transferred to a holding company in the group if it was not the acquirer.

Cost-saving

Arguably the most important reason why a group of companies would want to streamline their structure is to save on costs.

The upkeep and maintenance of multiple companies all requiring separate accounts, tax work, and bookkeeping can become very expensive.

Streamlining a group structure so that it consists of just one, or at least significantly fewer, companies than before will certainly reduce costs in the short and long-term.

Administration time will also be significantly reduced if all efforts are focused on a smaller number of similar companies, rather than multiple entities with various needs and differences.

While it seems complex, with advice and expert knowledge, simplifying your company structure can be less difficult than anticipated.

It is always best to seek guidance when devising a plan for group simplification so that you can prevent expensive errors through careful diligence.