Tryton
Why not killing company? Good afternoon folks. Having followed the recent discussion about company module with respect to integrating different legal entities, I would like to take the opportunity and add a different perspective on this: 1. Financial consolidation As I have stated many times before and would like to emphasize here again, I do not recommend any integration of financial accounting for consolidated statements or bookkeeping ventures. This theme is simply to complex and subject to so many changes in tax code that it is simply not serious to integrate this feature. The meaning of inter-company turnovers and average purchase price admissions vary from state to state and situation to situation in such a significant manner that this remains an issue for accountants to take the lead if at all. Most companies that are in need of financial consolidation in this extent will have to outsource this subject anyhow to a certain extent. 2. Operations >From an operation point of view, there are two main paths, how companies grow: First, via organic growth, second via transactionary growth. 2.1 Organic growth In organic growth scenarios, companies tend to use different legal entities (usually Limiteds) to setup different structures in geographical or industry markets. A company may use two different legal entities, one covering the Nothern regions of Leipzig and one covering the Southern regions of Leipzig. Or they may even use both legal entities to curve in the same market with different legal presences. The reason for this are various and highly individual: Ranging from reasons to be present with different entities in the market, to integrating people under certain legal entities, using incentive programs, diverting direct investments to the entity where it belongs, using different concepts (one premium pricing, one low pricing), separating customer responsibilities, limiting corporate liability, concentrating risks, using different entities for fast and slow growing segments, etc. One of the main questions for management has always been how to handle your business model with a structure (legal and organizational) that will fit it in the correct manner (Mintzberg, Structuring of Organizations, 1979). These structures must of course change over the years and move correspondingly with operational and strategic developments. The ability to differentiate those legal entities while at the same time using the same basis for the operational business model is crucial to growth. Neglecting this element may quickly lead to dysfunctional organizational processes and the inability to control and steer your company. 2.2 Transactionary growth The most common way to grow for companies are takeovers. Friendly or not friendly, from an operational point of view, the main challenge is to integrate existing operations into your business model and processes without loosing too much time and keeping the integration phase as short as possible, as integration usually means that you have no control of those operations compared to your own ones. Different legal entities here again, will be kept as they are known in the market and used by thousands of suppliers and customers and partners. The main task is to make sure not to loose these existing networks and connections. Also, many legal entities are simply registered as suppliers or partners with certain companies. Attempting to switch these existing registrations to the new parent company is usually commercially irresponsible from a compliance and due diligence point of view. 3. Requirements The main aspect that needs to be respected for your work processes is the ability to manage all operations internally from one system, while using different legal entities externally. When we takeover a company with long-standing client relations and network, we will of course continue to use the company name and its legal framework, while processing all operations internally on the same system - because the legal entity does not make a difference to process standards and quality levels. Externally, we may even use a different address and different directors and different capital assets to present the unit in the marketplace. Also, the participation of individuals in the various legal entities are a crucial element to adopting fitting incentive systems to lay a framework for loyalty. Cheers, Denis
