Creation of a group of companies

Mar, 02 2022

Contents:

A group of companies is two or more independent enterprises that have one senior management. Since companies are managed from one center, they are often bound by partnership or other obligations. As a rule, the creation of a group of companies is aimed at making a profit and minimizing tax payments.

Legislative justification of groups of companies

Russian laws do not provide for such a thing as a group of companies. It existed in legislative acts until 2007, but then the relevant law ceased to exist. It was canceled in order to avoid excessive control by the state. But this does not mean that the law does not regulate the creation of a group of companies and their functioning in any way.

Lawyers rely on the law “On Competition” and the chapter “Consolidated Groups of taxpayers”. In the first case, the law operates with such a concept as affiliated persons, that is, those who can influence the work of the organization. Although it is not the full equivalent of the GC, it is as close as possible to this term. In the second case, we are talking only about the tax side of the issue.

Please note that a group of companies is not synonymous with a holding company. The holding does not allow the independence of organizations, which is characteristic of the GC. It implies a community of enterprises managed by the parent company. Accordingly, the holding always has a parent and subsidiaries.

In legal practice, it is customary to define a Group of companies as several legal entities that voluntarily form a group. At the same time, all organizations have a common circle of owners and managers. It is customary to distinguish three types of groups:

  • “Unrelated” companies – enterprises that have a common owner and/or a common management company, but do not interact with each other in the course of economic activity.
  • Horizontally integrated – associations of companies operating in the same industry and at the same stage of preparation of goods/services. For example, these may be factories that produce similar products, or chains of stores with a similar assortment.
  • Vertically integrated – companies operating at different stages of manufacturing a single product or providing services to the consumer. For example, a group of companies consisting of agricultural enterprises, elevators, bakeries and a chain of stores selling bakery products.

Advantages of creating groups of companies

Businesses are often grouped together because it is profitable. However, it is important to understand that the very fact of creating a GC does not guarantee all possible advantages. A lot depends on the specifics of the industry and business, management literacy. Nevertheless, a group of companies as an enterprise organization format has many advantages:

  • Lobbying for common interests. The members of the association can more effectively defend their interests in state bodies, at the regional and federal level.
  • Simple but effective management. It is difficult to manage a large corporation. Whatever skills and experience the top management has, it is easier to manage several separate companies that have their own managers and directors. At the same time, you can invite high-level managers for each organization in the group.
  • Separation of areas of responsibility. Instead of working in several areas or industries, you can create a special organization for each of them. Then one company will be engaged, for example, in production, another party to the agreement – transportation, the third – marketing.
  • Cost savings. If you purchase certain raw materials or goods for the entire group of companies, you can get significant discounts from suppliers.
  • Quick decision-making. The larger the company, the longer the management takes to make important decisions. This is often due to the fact that due to the scale of the organization, some of the information reaches the management with a delay. But in a group of companies, each of the participants responds faster to changes in the market situation and within the business itself.
  • Increase of entrepreneurial potential. This is facilitated by the fact that the companies are independent, but at the same time adhere to a common policy and values. They invest effectively, insure each other in risk management.
  • Risk reduction. If one of the divisions of a large corporation loses profit or begins to work not too efficiently, this affects the entire organization. But if one of the GC participants has problems, as a rule, this does not create difficulties for other companies.
  • High investor loyalty. GC gives the impression of a large, influential organization, which helps in negotiations with potential investors and partners.
  • Improving competitiveness. As a rule, the Group of Companies has all the necessary resources to produce high-quality goods or provide first-class services. At the same time, the group of companies can perform a full cycle, maintaining high quality of goods / services: from the purchase of raw materials to delivery and advertising. This is a big advantage in the market.

However, the GC has significant drawbacks that also need to be taken into account. Such disadvantages include the lack of state regulation of groups of companies. You also run the risk of encountering a complex, confusing hierarchy system and, as a result, a complicated bureaucratic apparatus that will only slow down decision-making or create conflicts within the group.

Also, different companies can work with different tax systems, and this creates additional difficulties. Finally, there is usually no competition within the group. Sometimes this leads to the fact that individual productions lose profitability, begin to work inefficiently.

Features of creating a group of companies

The law does not establish a specific procedure for creating a Civil Code. From a legal point of view, you do not need to register a group of companies, as, for example, a legal entity or a holding company is registered. Therefore, internal documentation comes to the fore – it determines the division of enterprises.

On the other hand, the laws of the Russian Federation allow you to create autonomous companies that are managed by the head office. We are talking about subsidiaries. To form a Group of companies through subsidiaries, you can create the appropriate companies from scratch, conclude a joint work agreement with partners or buy a controlling stake in another company. After that, you will only need to develop internal documentation that will define the management and interaction between companies.

When does it make sense to create a GC? With all the advantages of this form of business organization, it is not universal. It makes sense to form a group only when circumstances require it.:

  • Management difficulties arise. This happens when a business grows, begins to engage in different areas, increases the management apparatus. If the company has grown and it has become too difficult to manage, you can divide it into several autonomous organizations, each of which will receive its own manager. Most often, entrepreneurs decide to create a Group of companies precisely in order to optimize management, while maintaining coherence of work.
  • You work in different industries/spheres. For example, you have a large marketing department. You also develop software and manufacture components for computer equipment. The transportation department copes with large volumes of orders. In similar situations, it is advantageous to divide one large corporation into 3-4 smaller companies, each of which will have its own profile.

Document flow within groups of companies

The organization of a Group of companies is one of the ways to optimize management, but at the same time it inevitably leads to a complication of document flow. There are several ways to organize it. The first is to divide the areas of responsibility between the group members. Then one organization is responsible, for example, for the registration of securities, and the second – for accounting. The second method is separate accounting systems within each organization.

Separation of responsibilities is a good solution if the group is created from one large company. Independent document management is suitable for independent organizations that are grouped together. But even in this case, it is worth taking care of optimizing documents: create a common instruction for everyone, organize appropriate services, establish general rules for the movement of documents between group members.

Author of the article
Creation of a group of companies
Valentina Khlavich
Managing Partner
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