LCN Corporate Simplification Guide Part 1 – What is corporate simplification?

This article forms part of our guide to corporate simplification and legal entity projects. Links to the other parts of the guide are at the end of this article.

Corporate simplification is the process of reducing the complexity of a corporate group by reducing the number of legal entities. It is also known as “legal entity reduction”.

The need for corporate simplification arises because corporate groups tend to accumulate additional companies or entities over time. This may happen because:

  • the group acquires other companies, which already have a number of subsidiaries
  • subsidiaries or SPVs are set up for specific projects or to hold particular assets
  • subsidiaries are created as part of tax planning structures

Typically, the overall objective of a corporate simplification project is to achieve a group structure which balances a number of factors:

  1. Governance – promoting clear decision-making, accountability and reporting
  2. Compliance – supporting compliance and reducing personal risks for directors
  3. Risk – ring-fencing liabilities appropriately, so that the core activities and assets of the group are protected
  4. Finance – allowing finance to move efficiently within the group
  5. Tax – supporting the group’s tax objectives
  6. Efficiency – minimising transaction and maintenance costs

A corporate simplification project often involves:

  • Consolidating activities into fewer entities
  • Removing unnecessary entities
  • Controlling the ongoing creation of entities

Read the other parts of this guide to corporate simplification projects:

Part 1 – What is corporate simplification?

Part 2 – Typical triggers and drivers

Part 3 – Quantifying the likely cost savings

Part 4 – Typical project blockages

Part 5 – The ‘corporate memory’ issue, and how to deal with it

Part 6 – Managing the due diligence process

Part 7 – Preserving assets

Part 8 – Using decision trees

Part 9 – Strike off or MVL?

Part 10 – Dealing with insolvent companies

Part 11 – Creating reserves using the solvency statement procedure

Part 12 – Transferring assets at book value or market value

Part 13 – Using cross-border mergers to remove companies

Part 14 – Removing companies with contingent liabilities

Part 15 – Disclaiming onerous leases

Part 16 – To recycle or not?

Part 17 – Restoring a company to the register

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