Legal entity rationalization - The ultimate “doing more with less” 

November 20:   When companies acquire or form new entities, complexity and costs increase. Many companies are looking for ways to reduce operating costs, contain cash expenditures, increase transparency, and improve their tax positions.

Companies may be able to achieve these goals by realigning and reducing legal entities through a “legal entity rationalization” project.

Legal entity rationalization

With a phased approach, proper business and functional inputs, and established leading practices, a legal entity rationalization project can help companies:


  • Increase efficiency and reduce overhead through the consolidation of operations
  • Eliminate nonessential entities that have developed over time
  • Consolidate extraneous entities acquired from a prior merger or acquisition
  • Gain more transparency into financial reporting environments
  • Take advantage of changed tax laws and income tax treaties
  • Simplify or redesign legacy tax structures that have out lived their usefulness

Legal entity rationalization is a key cornerstone of business transformation. A project to rationalize a company’s legal structure involves:


  • Evaluating whether the current corporate structure is adding more cost than value
  • Gathering the data and points-of-view that clarify the desired organizational end-state
  • If entity reduction is selected, developing a clear plan to reduce excessive organizational structure without materially affecting ongoing operations

Components to align business strategy, operating model

The legal entity rationalization process needs to align the company’s business strategy and future operating model. Key components are:


Organizational strategy - By aligning the organization’s legal entity structure with business strategy, companies can design a future state that more accurately reflects its business needs.


Legal entity elimination and simplification - As part of a legal entity rationalization project, companies need to create a set of guiding principles for eliminating entities and developing legal entity profiles that simplify their corporate structure.


Governance - Companies need to consider a legal entity governance framework and policies and procedures for opening, maintaining, and closing legal entities.


Implementation - Legal entity rationalization projects touch many business functions—including finance, tax, legal, and treasury processes. Functional leaders need to articulate clearly and agree upon the desired end-state before the project implementation moves forward.

KPMG observation

Legal entity rationalization projects generally raise complex regulatory, commercial, legal, tax, finance, human resource, and other considerations. KPMG has an experienced team with the tools and software to assist companies to build an efficient global process.


Read Legal Entity Rationalization - The art of simplification [PDF 714 KB]



For more information, contact:


Barbara Federowicz
Advisory Managing Director


Lisa Madden
National Practice Leader, Mergers & Acquisitions Tax



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