Organise or Discard: How to manage non-trading companies
Have nothing in your house that you do not know to be useful or believe to be beautiful is the decluttering mantra for the minimalist generation. A legal entity can hardly be deemed beautiful so, in order to stay housed within a corporate structure, it follows that it must be useful. Statistics show that there are currently over 2 million non-trading companies registered at Companies House. That’s enough clutter to bring any chronic disorganisation specialist out in a cold sweat! (That’s a real job, in case you’re wondering).
So why is the UK, not a country usually associated with sentimentality, guilty of hoarding so many entities on such an epic scale? It’s a question that throws up many answers but, the most common are usually:
- Fear of the unknown. Identifying the assets and liabilities of a long established company can feel like opening Pandora’s Box. As founders and key personnel move on, there is often a lack of corporate knowledge about a company’s activities and trading history. Such entities are likely to include redundant Special Purpose Vehicles (SPV’s), historic acquisitions, joint venture vehicles and organisations with complex, inefficient tax structures.
- Time. Conducting a detailed audit of a company’s trading history, assets and liabilities does take time. How much time each audit will take depends on a number of factors, not least the industry and number of trading activities carried out by the entity in question. Other variables include the length of time the company traded, how long it has been inactive and the reasons why that activity was wound down. Not all potential closures may be quite so complicated though. SPV’s established to hold assets later sold off can, in most cases, be closed down with relative ease.
- Cost. There is a perception that closing down an entity will cost more in the short term than simply leaving it dormant. But such an approach is often a false economy. Non-trading companies can take up valuable resources across legal, compliance, finance, treasury, tax and audit teams and will continue to do so until they are formally dissolved.
While large corporate structures can indicate an engaged, diverse and thriving business, it is important that such organisations are seen to be monitoring and controlling the growth of their corporate charts. It’s a constant challenge for corporate governance teams who are tasked with reminding decision-makers that they must show equal commitment to closing down defunct entities as their desire to open new ones.
The first step on the road to streamlining any organisation is to evaluate the current structure of the corporate group and draw up a vision of how you would like it to look going forward. The second is to identify and conduct a thorough review of any assets and liabilities in non-trading companies. The third is to draw up a plan of action on how to achieve step one in light of what has been identified in step two.
Margaret Timmons is an Associate at Doyle Clayton specialising in corporate reorganisations and integration projects, with particular expertise in the media sector. If you would like help achieving your vision to streamline your organisation’s existing corporate structure please contact Margaret at firstname.lastname@example.org.
The articles published on this website, current at the date of publication, are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your own circumstances should always be sought separately before taking any action.