TL;DR: any legal entity has only one task — to legalize the activities of the enterprise
In British corporate law, there is such a entity as an SPV (Special Purpose Vehicle), which is a type of entity that is created for a specified project or deal, not necessarily related to profit making. Most often, they are created to structure or finance transactions so that the financial risks are limited to the liabilities of that SPV. As soon as the transaction is completed, the SPV terminates its activities.
The SCH Group occasionally encounters misunderstandings from contractors on this topic. For some, the period of working experience of the legal entity with which the contract is signed is very important. For others — the form of the legal entity. The regulator sometimes asks questions about the “economic sense” or “business purpose” of the organization… As if they are trying to assign some qualities or traits to a legal entity that it cannot have a priori.
Mental experiment: Can the reader tell which legal entity owns the rights to the Coca-Cola, Google, or Starbucks trademarks in his or her country? And how old are these legal entities? And how many employees officially work for these entities? How often do trademark rights transfer from one legal entity to another?
We, at SCH Group, always consider legal entities as SPVs. The legal name of the counterparty for us is an easier form of TIN to remember. Only the counterparty’s business reputation makes sense. We do not open SPVs ourselves if we can do without them; and we close them easily if there is no need for a legal way of doing business. Or use the agent model. Since 2006, no one has been fired or punished for dealing with SCH Group companies.
And if we approach the question in the most abstract way, it turns out that in jurisdictions with a high level of corruption and weak protection of property rights, any legal entity is an SPV created to legalize some activity. There is no other sense for the legal wraparound and the difficulties associated with this process in such places.