Corporate management of an international group of companies

Mainstream

Corporate governance in an international group of companies is not a nominal director and sets of constituent documents. It is an architecture of decision-making and control.

The question is not whether the company is registered correctly. The main question is who makes key decisions at a critical moment and where the boundaries of the beneficiary’s responsibility lie.

Therefore, an effective management system is based on three tests:

1. Is the corporate envelope (piercing the corporate veil) broken?
2. Does the decision-making mechanism work in the context of partner conflict or sanctions pressure?
3. Whether assets are protected by changes in management, arrest or blocking actions of third parties.

If these three issues are not resolved in advance, the business may face operational paralysis, loss of an asset, or personal liability of directors despite having a holding structure.

When the need arises to review the management system

A restructuring or audit of corporate governance is necessary if:

• New jurisdictions with different regulatory standards have emerged in the group.
• Partners or shareholders are located in different countries.
• sanctions are imposed against one of the participants, sector of the economy or jurisdiction;
• Operating companies are managed directly by the beneficiary without a board of directors.
• Corporate documentation of different jurisdictions contradict each other.
• financing is attracted through foreign holding companies;
• a generational change or the business inheritance is planned;
• The group prepares for an M&A transaction, audit or engagement of an institutional investor.
• There was a corporate conflict or deadlock between partners.

The mistake most owners make

Many of the owners of the group start with the question:

How to minimize taxes?

This is the wrong first question from a management standpoint. The reduction of the tax base, implemented at the expense of corporate logic (substance), creates critical risks.

The right question is:

How can I maintain legal control and protect assets from external and internal threats while remaining within the law?

Sometimes the best result is a simplification of the structure and the rejection of the “gray” denominations. Sometimes, it is the introduction of a multi-level board of directors with independent members. Sometimes, it is the transfer of the decision-making center to a particular jurisdiction. Corporate governance does not require imitation of activity, but a functional architecture.

Step 1. Legal Entity Chart (Legal Entity Chart)

The first thing to look at is not the balance sheet, but the legal ownership card.

Key points of analysis:

• chain of ownership: Who is the ultimate beneficiary (UBO) and whether it is disclosed
• jurisdiction of incorporation: Offshore, onshore, low-tax or high-tax;
• Management bodies in each company: whether there is a board of directors or a single body;
• The real status of the directors: Nominal, professional or executive;
• Corporate and Shareholder Agreements (SHAs)
• intra-group loan, service and licensing agreements;
• intersection of the personnel of management bodies in different jurisdictions;
• The presence of powers of attorney and their scope.

If the structure is based only on verbal agreements or denominations of trust, management is not protected.

Step 2. Risk assessment of a substance (substance over form)

Compliance with substance criteria is not only a tax necessity, but also a way of protecting against challenging the structure.

We need to check.

• where the key commercial decisions are actually made;
• where the meeting place of the Board of Directors is located;
• whether the directors have sufficient qualifications;
• where substantial contracts are signed;
• where documentation and seals are stored;
• Does the management company have an office and staff?

Especially dangerous situations are when the director of an offshore company makes decisions on a call from a beneficiary from another jurisdiction without having the right to veto and without keeping protocols. This is the way to recognize the company as a “conduit” with consequent responsibility.

Step 3. Selection of control mechanics: Board of Directors or Single Body

It's not a formal choice. It's the allocation of responsibility.

Sole Director is suitable for service companies or low-risk intermediate holdings. The key disadvantage: complete vulnerability to illness, death, arrest or loss of communication with one person.

Board of Directors (Need for companies):

• Holding expensive assets;
• parties under international contracts;
• having bank financing;
• are located in regulated jurisdictions;
• There are several partners or investors.

Effective advice is not a collection of “their” people. It is a body where professional directors have a real veto power over transactions that carry the risk of violating local laws or personal liability.

Step 4. Shareholders’ Agreement as the Basis of Stability

If there is more than one beneficiary in the group, the Articles of Association will not resolve all the issues. A shareholder agreement (SHA) is required.

Key provisions of a strong SHA:

• Deadlock Resolution: mechanism for resolving deadlock situations (Russian roulette, Texas shootout, buy-sell options);
• Tag-along/Drag-along rights: protection of minority shareholders and the right of majority shareholders to withdraw;
• Reserved Matters: list of issues requiring unanimity (budget, change of directors, major transactions, change of jurisdiction);
• Good Leaver/Bad Leaver: consequences of the partner’s exit, depending on the reason;
• Transfer Restrictions: prohibition of the alienation of shares without consent;
• Non-compete and confidentiality;
• Choice of Law and Dispute Resolution: Choice of law and arbitration clause.

Having a written exit or deadlock scenario saves businesses from devastating litigation wars.

Step 5. Financial Flows and Treasury Function (Treasury)

Disparate account opening in different jurisdictions without a centralized policy creates the risk of fraud and blocking.

It is necessary to build:

• Cash Pooling (physical or conditional) for efficient use of liquidity
• Centralized Treasury with a signature matrix;
• a system of accounts with a distinction between operational, transit and investment accounts;
• Intra-group loans policy with market rates and proper documentation
• Management of foreign exchange and sanctions risks in cross-border payments.

Mistake: Using one company’s accounts to pay off the obligations of another company without a loan agreement is a classic mix of assets that destroys corporate protection.

Step 6. Compliance Risk Management and Directors’ Responsibility

Directors in international groups are increasingly personally responsible for non-compliance.

The management system shall include:

• KYC / UBO-questioning of counterparties;
• Sanctions and export screening;
• Anti-Corruption Policy (Anti-Bribery Policy)
• the procedure for matching gifts and hospitality;
• Internal channel for whistleblowing;
• Training of directors and employees.

Without this, the director risks being the last to investigate, and the bank could freeze the accounts of the entire group because of the actions of one subsidiary.

Step 7. Emergency management: sanctions and loss of control

The crisis management model must be ready before the crisis strikes.

The scenarios you need to be prepared for:

• Imposition of sanctions against UBO or the director;
• blocking of accounts by a correspondent bank;
• arrest of the property of the subsidiary company;
• sudden death or loss of legal capacity of the owner;
• “Sleeping” denomination or raider seizure.

Protection tools:

• Emergency director change protocols (with a copy stored in the bank);
• Irrevocable POA (Irrevocable POA) with a limited validity period;
• “Golden share” or veto right of the protective holding;
• Pre-signed resignations without a date (used with caution in a number of jurisdictions).

Step 8. Digital control circuit

Documentation and access should not exist in disparate mailboxes.

The structure of the group should be digitized:

• Unified register of beneficiaries and directors;
• The system of storage of corporate documents (Data Room);
• Distinguishing access rights to files and seals;
• Fixing all solutions (Board Minutes and Written Resolutions) in a structured form
• Calendar of corporate actions and reporting.

Checklist of the beneficiary of the international group

Before you approve your management strategy, answer 15 questions:

1. Do you know the names of all the directors in your organization?
2. Are there any corporate agreements between partners?
3. Who makes decisions if the CEO (you) is temporarily unavailable?
4. Do your directors have written instructions in case of incapacity?
5. Where are the meetings of the Board of Directors of the key holding physically held?
6. Are the assets and liabilities of different companies in the group mixed?
7. Does the substance level match the company’s operating profile?
8. What is the mechanism for resolving deadlock with a partner?
9. Are you protected from an unjustified “exit” of a minority shareholder?
10. Who has the right to sign accounts and for what amount?
11. Is there a regular scoring of counterparties for sanctions?
12. Where are the original stock and seal certificates stored?
13. Is the structure personal or institutional?
14. How quickly can a compromised director be replaced?
15. Does the structure meet the new requirements for the disclosure of beneficiaries in the countries of presence?

Court or arbitration in corporate conflicts: pick

The choice does not depend on the fashion for arbitration, but on the jurisdiction of the company’s incorporation, the availability of a shareholder agreement and the location of the defendant.

Common mistakes in building a management system

1. What works for a public corporation is not suitable for a family office. You cannot blindly pass other people's decisions.

2. Ignoring the management vertical Common situation: The owner signs documents for 10 different companies, creating a “single center” that the tax or creditor uses to impose subsidiary liability on personal property.

3. A director with signature but no instructions and no reporting is not a tool, but a time bomb.

4. Death or loss of communication with the beneficiary paralyzes accounts for at least 6-12 months unless heirs are entered into the management structure in advance.

5. Disclosure of the ultimate beneficiary where disclosure is required (e.g. when opening an EU account) leads to immediate blocking of transactions.

What a Strong Corporate Governance Strategy Looks Like

A strong strategy usually includes five levels:

1. Structural Defence Audit and clearing of the ownership chain from inactive links, setting up the “fire-resistant” architecture of the holding.

2. Decision-Making Matrix: A clear delineation of authority between the shareholders’ meeting, board of directors and management in each jurisdiction.

3. Governance Documentation: Bringing statutes, codes, powers of attorney and policies to a single standard that excludes contradictions.

4. Crisis Protocol: Development of scenarios for sanctions, loss of ability to work or attack on assets.

5. Institutional Memory Digitization of protocols and solutions, formation of a corporate secretariat, independent of specific individuals.

Without a fifth level, the system collapses with any personnel replacement.

FAQ

Managing a foreign company from the territory of the Russian Federation is possible, but it is critically important that it be properly designed and not create a tax residence of the company in the Russian Federation because of the place of decision-making. Substance analysis is required.

When I need a professional director, not a nominee director?When a company has an active business, bank accounts and counterparties. A professional director makes decisions consciously and shares compliance risks with you, a nominal director simply signs, which increases your personal responsibility.

This is a special right of the beneficiary or the state to veto key decisions (change of charter, liquidation, major transaction) regardless of the size of the share. It is used to maintain control during capital erosion.

How to protect a company from a “divorce” with a partner? The mechanism should be designed so that in a conflict, one partner can buy out the other’s share fairly, rather than destroying the business by courts.

It is possible, if the procedure for local corporate law is followed and there is a decision of shareholders. If the director is one of the beneficiaries, his removal without the SHA may not be possible, resulting in a deadlock.

Related services

• International Corporate Structuring & Governance
• Private Wealth & Family Office Strategies
• Sanctions, Export Controls & International Compliance
• Commercial Contracts & Corporate Documentation
• International Tax Planning & Substance Advisory

Related material

• How to choose a jurisdiction for a holding company
• Risks of mixing assets: How to Protect the Personal Property of a Business Owner
• Sanctions Compliance for Directors of International Groups
• Beneficiary subsidiary liability: line
• Planning the inheritance of international assets
• How to Create a Shareholder Agreement (SHA)
• Professional Director vs Nominal Service: pick

Conclusion

Corporate management of an international group is not about cosmetic document repairs, but about creating an institutional system that ensures business continuity.

A strong position is based on the separation of levels of ownership and management, providing real substance, preparing for crisis scenarios and clear rules for resolving conflicts between partners.

In international business, sustainability is not determined by how cheaply a structure is registered. Sustainability is determined by whether the owner retains control of the assets when the usual mechanisms fail.