Over the past few years, many companies have implemented completely unforeseen and unprecedented changes. And for some, these changes will mean that the legal entity structure they previously used is no longer fit for purpose. So, when is it time to restructure your corporate legal entity?
Common Scenarios That May Trigger a Legal Entity Restructure
There is no one-size-fits-all approach to determining exactly when a corporate entity restructure will be appropriate, but it’s worthwhile reviewing your legal entity if:
- Your operating model has changed from customer-facing to mostly or entirely remote operations;
- You franchise your business;
- Product lines and/or corporate divisions don’t make sense being together anymore;
- You are considering overseas expansion;
- A new product line is being deployed;
- Your organizational structure is inefficient or causing significant challenges;
- Your legal entity structure is causing additional issues within your supply chain; or
- The existing entity is causing legal risk that isn’t acceptable to your company.
Bear in mind, this isn’t a complete list and the timing and cause of legal entity restructuring is unique to a company’s circumstances.
The Process Behind a Legal Entity Restructure
Companies should work with legal counsel to first determine the most appropriate legal entity structure and then implement it. Here’s what the process typically looks like:
- You and your attorney should review your assets, liabilities, liquidity position, and future fundraising plans. Any anticipated changes should also be discussed.
- After building a picture of your business objectives, your corporate attorney and other relevant professionals (such as tax advisors) should work together to determine the most appropriate legal entity structure. It’s likely your advisory team will need copies of existing corporate legal documents, including company registration documentation, financial records, annual reports, and information about equity and shareholdings.
- Then, your attorney should develop a strategy to complete the legal entity restructure and implement it. The process and timeline will vary depending on the existing and proposed corporate legal entity’s registration, as well as the type of entity selected, and the registration requirements in that jurisdiction.
If your legal entity structure is causing inefficiencies or exposing your company to increased risk, reach out. Our corporate attorneys would love to help.
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