TL;DR: the sole purpose of any legal entity is to legitimize the activities of a business.
In British corporate law, there exists a type of entity known as a Special Purpose Vehicle (SPV). An SPV is designed for a specific project or transaction, which doesn’t necessarily have to be profit-oriented. These entities are most commonly established to structure or finance transactions in a way that limits financial risks to the SPV’s liabilities. Once the transaction is complete, the SPV ceases its operations.
The SCH Group occasionally encounters misunderstandings on this topic from contractors. For some, the legal entity’s operational duration with which the contract is signed is of paramount importance. For others, the legal entity’s form holds significance. Regulators occasionally question the “economic rationale” or “business purpose” of the organization, as if trying to attribute qualities or characteristics to a legal entity that it inherently cannot possess.
Consider this thought experiment: Can you identify which legal entity holds the rights to the Coca-Cola, Google, or Starbucks trademarks in your country? How old are these legal entities? How many employees officially work for these entities? How frequently do trademark rights transition from one legal entity to another?
At SCH Group, we always regard legal entities as SPVs. To us, the legal name of a counterparty is merely an easier-to-remember version of a Tax Identification Number. Only the business reputation of the counterparty matters. We refrain from establishing SPVs ourselves if we can avoid them, and we readily dissolve them if there’s no longer a need for a legal mode of operation. Alternatively, we employ the agent model. Since 2006, no one has been dismissed or penalized for dealing with SCH Group companies.
From the most abstract viewpoint, it appears that in jurisdictions with rampant corruption and weak protection of property rights, any legal entity is essentially an SPV created to legitimize a certain activity. There’s no other rationale for the legal formalities and the challenges associated with this process in such contexts.