Following up on my blog entitled “7 Rules of Thumb for Subsidiary Governance,” on your annual calendar of “to-do” governance tasks, you should include a check-in as to whether you have any subsidiaries that have remained dormant for some time and are unlikely to be used again.

For some companies, this is easy. For some, it can be quite a task. I worked in-house at a company that had hundreds of subsidiaries. Working on the governance for those was a full-time job for one of our staff!

To be able to accomplish this, you’ll need to keep track of what your business needs are – and know which entities you need to accomplish those needs. You should be able to spot those LLCs and C corps that are just hanging around, that are no longer serving their original purpose.

Of course, before you decide to pull the plug on a subsidiary, you should talk to some business people that were involved when it was initially set up or when it was operational to ensure they don’t need it anymore. Make them aware of the costs involved in maintaining it.

Many people don’t realize how much a dormant subsidiary costs. On average, for each one, about $5,000 – $10,000 per year to handle legal, accounting, and banking costs. That adds up. You’ll want to prune your subsidiaries as much as you can.

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Photo of Broc Romanek Broc Romanek

As a strategist for the firm’s Corporate & Securities practice, Broc Romanek has a deep understanding of the regulatory and environmental, social, and governance (ESG) marketplace. Prior to joining Perkins Coie, Broc served as editor at TheCorporateCounsel.net, CompensationStandards.com, and DealLawyers.com, where he oversaw…

As a strategist for the firm’s Corporate & Securities practice, Broc Romanek has a deep understanding of the regulatory and environmental, social, and governance (ESG) marketplace. Prior to joining Perkins Coie, Broc served as editor at TheCorporateCounsel.net, CompensationStandards.com, and DealLawyers.com, where he oversaw and managed coverage on issues related to ESG, corporate governance, executive pay, deals, and market trends and analysis.

In addition to his nearly two decades of working as a journalist and publisher, Broc served as assistant general counsel at a Fortune 50 company, worked in the Office of Chief Counsel of the U.S. Securities and Exchange Commission’s (SEC) Division of Corporation Finance, was a counselor to former SEC Commissioner Laura Unger, and worked in private practice. He also is the author, or co-author, of four legal treatises, and has authored several books focused on the legal industry.