What is corporate simplification?

What is corporate simplification? A corporate governance education guide to enhance your leadership knowledge in business. 

A successful business continuously thrives on fine-tuning its operations to increase profitability and performance. An area that’s often overlooked is the way an organisation and its entities are structured. Corporate simplification is when a complex corporate structure is simplified to streamline operations and eliminate duplication to minimise risk and increase efficiency. 

Corporate simplification is when a corporate structure is simplified by removing one or more entities. This offers a wealth of benefits that can upgrade a business’s health and unlock cash previously used to maintain an unnecessarily complex web of entities.  

An organisation may benefit from corporate simplification if it has an overly complex corporate structure as it: 

• Owns multiple entities that are duplicates 
• Owns entities that historically served a purpose but which now redundant 
• Maintains dormant companies that do not bring value, offer future opportunities, or function as part of a contingency plan

While a complex corporate structure may be strategic, it must also be streamlined. Due diligence must ensure that entities identified as surplus are not part of a wider operational strategy or hold a specific tax purpose. Providing due diligence checks out, surplus entities must be responsibly disposed of during corporate simplification through a formal company closure route. 

Surplus entities must be maintained from an accounting and finance perspective, which may include additional running costs for professional services, insurance, property, employees, technology, marketing, and ESG. Dormant companies also usually have costs anyway, such as fulfilling annual compliance obligations for the state/national regulator. 

This can be costly for the organisation, along with the administrative and ESG burden that requires time, investment and people power. An inefficient corporate structure can pose unnecessary risks to your organisation and plug growth potential.

Corporate simplification can transform business performance, unlock resources, and establish a burden-free business:

• It diverts valuable resources to thriving parts of the business
• It reduces administrative needs, compliance duties, and corporate governance obligations 
• It reduces tax liability, accounting obligations, and outgoings 
• It makes for easier financial planning 
• It streamlines corporate structure by removing unnecessary weight from the organisation, which increases value 
• It increases transparency and clarity across the group 
• It reduces time spent managing organisational affairs 

Corporate simplification can range from subtle changes to the framework of your group to a complete restructure. If corporate simplification is the next step for your organisation, what action should you take?

Corporate simplification should be approached with diligence and care to protect the profitable components of your business. No corporate simplification programme is the same, as each minute detail is tailored to an organisation’s setup. 

The advisory arm of a professional services consultancy is typically the home of corporate simplification and business restructuring experts. A trusted, reputable, and highly esteemed provider can draw upon their experience and industry expertise to finetune your organisation to perform at the height of efficiency.

Shaun Barton is a partner at Company Closure and boasts a wealth of experience in helping directors of distressed companies understand their options. A director-facing adviser, Shaun is often the first point of contact for business owners in financial distress, consistently delivering expert advice when it is needed the most.