Legal Entity Rationalization (LER)
Business case for legal entity rationalization
Legal entities cost money and resources to hold and manage. Companies may improve long-term business performance by aggressively reducing the number of legal entities and integrating human capital and operations efficiently within the streamlined “go-forward” population.
Through our deep knowledge and global experience, JR Management & Advies can assist clients in working towards capturing cost reductions and achieving structural alignment with their business objectives.
Clients report annual carrying costs of $25k–$50k per legal entity, indicating a potential opportunity for every 100 entities eliminated:
- More productive human capital
- Removal of inefficient tax and legal structure
- Reductions in inter-affiliate transactions
Administrative cost savings
Clients indicate administrative cost savings following LER in these key areas:
- Finance and accounting
- Statutory audits
- Internal accounting and account reconciliations
- Audit of each entity
- Management and external reporting
- Information technology
- Initial integration of legal entities into business systems, controls, reporting
- Data warehousing of accounting and legal
- Software licensing for each entity
- Duplicative IT functions, platforms, systems
- Human capital
- Duplicative management
- Duplicative HR systems sharing plans
- Tax
- Income tax reporting and filings, disclosures
- Value-added and other indirect tax filings
- Transfer pricing
- Legal, regulatory and contractual
- Licensing, permits, fees, insurance
- Maintenance of general corporate legal documents
- Agreements with same or similar counterparty
- Intercompany agreements and transfer pricing
- Liability risks
- Intellectual property
- Similar IP in various legal entities
- Infringement risks from current structure
Legal entity rationalization can:
Eliminate legal entitles
- A meaningful reduction in legal entities produces administrative cost savings, frees resources, reduces risk and increases transparency.
Align the legal entity structure to the business
- Aligning the legal entity structure to the business supports efficient operations, decreases risk and increases manageability.
Identify and capitalize on opportunities
- The cross-functional LER process highlights additional valuable initiatives.
Create operational synergies
- Rationalization can result in efficiencies through entity-specific operational integration and thoughtful placement of each target entity’s human capital, assets and operations.
Avoid costs
- Avoid integrating redundant entities into performance improvement initiatives.
How we work
LER projects are typically international and multidisciplinary in nature, the reason being that the elimination of an entity can lead to a displacement of employees, operations and financial flows as well changes to IT systems. JR Management & Advies has tax and legal experience with rationalization projects in many different countries. We can help you rationalize the number of legal entities in your organization.
