Corporate simplification is a method of removing companies from your corporate structure to “tidy it up”. A simplified structure is more likely to be attractive to potential buyers and carrying out the simplification process on your terms without the pressure of a larger transaction will save you money. Simplifying your structure now will also allow you to enjoy the benefits from the exercise prior to sale:
Eliminating unnecessary companies allows management, legal, and compliance teams to focus their time on the core companies required to run, expand and sell the business. A less complex structure can also simplify the repatriation of cash from trading subsidiaries and other intra-group financing arrangements. This will be attractive to potential buyers.
Governance standards and transparency
With ever changing legal and corporate governance requirements for companies, including new anti-bribery and data protection laws, ensuring that companies are meeting the required standards is an ongoing challenge for organisations. It is far easier to maintain these standards with a less complex corporate structure. On a sale, a buyer will seek warranties in respect of compliance of the business with “all applicable laws”. Reducing the number of companies in your structure will mitigate the risk in giving such a warranty.
Sometimes complicated structures can lead to tax inefficiencies such as tax leakage or additional tax compliance burdens when repatriating cash up through the group. Simplifying the complexity of your corporate structure may resolve such tax inefficiencies within the organisation and allow for improved tax planning. A prospective buyer will carefully consider the tax position of a business and will seek tax warranties and likely a tax covenant from the seller. Resolving tax inefficiencies can stop a potential buyer using these inefficiencies to negotiate a reduced sale price and can provide a seller with some comfort when giving tax warranties and a tax covenant.
A key benefit of corporate simplification is the reduction of compliance and administration costs. An organisation can incur costs and expenses in excess of €8,000 a year to maintain a dormant, or relatively inactive, Irish company. These costs and expenses relate solely to ensuring that the company meets its ongoing compliance, audit and other legal obligations and do not account for employee or executives’ time in ensuring such compliance. This is a benefit to all businesses irrespective of whether or not a sale is contemplated.
For acquisitive organisations, corporate simplification is an efficient tool to use on an ongoing basis to integrate complementary businesses in a single entity and remove consequently unnecessary companies.
If you are planning the sale of your business soon or in the next 12 to 18 months, consider now how best to present your business to potential buyers. Corporate simplification is an efficient tool to put in place a corporate structure that will be attractive to prospective buyers and allow you to get the best price for your business.