This article forms part of our guide to corporate simplification and legal entity reduction projects. Links to the other parts of the guide are at the end of the article.
Corporate simplification or legal entity reduction projects typically involve ‘cleaning out’ companies by transferring assets, novating contracts or discharging liabilities. The question is often asked whether those companies should then be ‘recycled’ and used for some other purpose.
Here is a short summary of the arguments for and against.
- The relevant company may have a good credit rating, which may be helpful for other projects
- Re-using a company which has already been set up on the relevant finance and accounting systems may save time
- The company may have tax losses which can be utilized
Note that name protection or brand protection is often given as a reason to keep a particular company, but in fact, the protection given is very limited. It only prevents the incorporation of another company in the same jurisdiction with the same name, or with a name which is so similar that the public is likely to be confused as to which company is which. The appropriate way to protect names or brands is trade mark registration.
- Removing a company (by strike off or liquidation) avoids the ongoing cost of maintaining cleaned-out companies, which is often a key driver for the project in the first place
- A particular company may have a name (or former name) which has unwanted associations
- The cost of incorporating new companies is generally very low
- For most projects, having a new company with no history is preferable and avoids unnecessary concerns, transaction costs, and due diligence
Read the other parts of this guide to corporate simplification projects: