Legal Entity Rationalization

Legal Entity Rationalization

Is your current corporate structure adding more cost than value?

With each acquisition or formation of a new entity, complexity and costs increase.

Successful companies tend to grow, not shrink. But with each acquisition or formation of a new entity, complexity and costs increase.

Many organizations are now looking for ways to reduce operating costs, contain cash expenditures and improve their tax positions. Companies may be able to achieve these goals by reducing and realigning legal entities through a legal entity rationalization (LER) project.

LER can help you evaluate whether the current legal entity structure is adding more cost than value and help you determine the desired organization structure. If entity reduction is desired, LER can also help you develop a clear plan to streamline your legal entity structure without materially affecting ongoing operations.

The key components of an LER involve:

  • Development of an organizational strategy to design a future state that more accurately reflects business needs
  • Development of an implementation plan that involves coordinating with and taking into account the perspectives of the company’s functional leaders to agree upon the desired end state and the path to get to that end state
  • Legal entity elimination and simplification that takes into account time and budgetary constraints and opportunities associated with each eliminated entity
  • Development of a suggested governance framework as well as policies and procedures for forming, maintaining and dissolving legal entities

Using a phased approach—along with proper risk management and leading practices—an LER project may increase efficiency and reduce overhead. It may also eliminate or consolidate nonessential entities, increase transparency of financial reporting, reduce costs associated with tax filings and improve the tax efficiency of the legal entity structure.

Some or all of the services described herein may not be permissible for KPMG audit clients and their affiliates.

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