Management company for business: opportunities, options and risks

The inclusion of a management company in the legal business model is a common phenomenon. As a rule, the management staff of a business is one and it is impossible to divide it between companies. This always leads to the need to search for such a management option, when the owner retains control and influence both on the entire business as a whole and on any of its segments. Despite the economic independence of each subject of the group. This is how a common management company appears. But, as always, important nuances cannot be dispensed with.

The management company is a legal entity of any organizational and legal form. In our experience, not only LLCs or JSCs, but also cooperatives, partnerships, partnerships, and even non-profit organizations can act as a management company. As a rule, the management company closes a complex of strategic, tactical, general marketing (including brand management), organizational, motivational and control functions, as well as the functions of scientific and technical development and financial management for all other entities of the Group of Companies.

Why is the UK needed?
1. The need for all entities of the group of companies in common auxiliary functions for them: accounting, legal, personnel, IT, marketing and other services. Their isolation in a separate organization is managerially and economically more profitable than the creation of similar full-time services in each individual company.
Most often, managed legal entities do not have their own lawyer, accountant, or system administrator – all this is done by the personnel of the management company. Objectively, not every business is able to pull such a staff in each individual organization of the Group. But even with this variant of the organizational structure, there should be a central link that manages the employees in the field.

Therefore, there are cases of creating functionally similar services both in the management company and in the managed society (for example, when the structure is branched, when individual companies are significantly removed from each other and from the management company itself), however, in this case, the management company is engaged in solving strategic problems, then how employees of a managed company perform current work that does not require high qualifications and knowledge of the strategic business development plan as a whole.

2. Transfer of management from the plane “he is the most important here, everyone knows him” into the legal field. More and more owners want to formalize relations with their business and fix legal guarantees. Here, as motivating reasons – the possibility of official income in the form of dividends, ensuring inheritance. The obvious option is the creation of a single management company that owns and/or manages the rest of the entities in the group.

3. The general MC is also convenient in the case of the opposite situation, when the owners participate in all the companies of the group, even getting into the “register of mass founders”. In addition to the obvious organizational difficulties in the form of unnecessary meetings of participants, visits to a notary, banks and regulatory authorities, owners with such a structure increase their responsibility for companies whose real management is concentrated in other hands (head of department, for example). Separation of ownership through the management company with legal delimitation of areas of responsibility for decisions made can be an effective option that is beneficial to both business owners and managers.

4. Opportunity to promptly carry out management accounting and develop, as well as adjust the previously developed strategy for the activities of the group of companies as a whole. Undoubtedly, business owners need to have full information about its functioning, financial performance, the degree of effectiveness of previously made management decisions. In this sense, the value of direct receipt of information about all significant events directly to the “headquarters” is invaluable for both owners and top management.

Options for formalizing relations with the Criminal Code
Regulation of the relationship between the management company and the managed companies can be built in several ways:

Firstly, through the inclusion of the management company in the composition of participants/shareholders of managed companies. In this option, the owners directly participate only in the management company, and then their opinion and ownership control are transmitted through the development of the constituent documents of the Group companies.

This design is convenient for owners and understandable to banks, investors, contractors. In addition, the corporate ownership structure allows a number of tax incentives to be used to redistribute profits within the group of companies.
The second way is using contractual structures, namely:

contracts for the provision of services for a fee (for the provision of accounting, legal, etc. services);

contracts for the performance of the functions of the sole executive body.

The choice of one or another contractual instrument depends on a number of factors and the specific structure of the group of companies.

Consider the features of the application of each of the contracts separately.