A company can be legally incorporated and legally mis-structured

There is a frequent confusion in the business world, one that stems from assuming a company is legally well organized simply because it has met the requirements needed to operate.

A company may be registered, hold an operating notice or license, and maintain contracts with its main suppliers; its workers have employment contracts and it files tax returns. It has a bank account and may even have certain internal policies. Formally, everything appears to be in order.

None of these circumstances, however, is enough on its own to conclude that the business is well structured in legal terms. Hence the strategic reflection: from formal existence to the legal architecture of the business.

The distinction matters because it forces us to abandon a purely formal conception of business or corporate law:

Legally incorporating a company is not the same as structuring a business in legal terms; they are different problems.

I. Legality and legal structure are not equivalent

As a first methodological step, I want to address the hypothesis: legality and legal structure are not equivalent.

Along these lines, a company's degree of legal maturity does not depend exclusively on its regulatory compliance, but on the level of coherence between its legal structure, its economic reality, its operating model, its risks, and its business strategy.

This proposition allows us to distinguish, at least conceptually, three situations.

The first is the company that fails to comply with the legal framework. Here we face a traditional problem of legality, or even of compliance. Certain obligations are simply not being met. The company finds itself in a state of constant risk within an increasingly demanding ecosystem, which can affect its sustainability and even its ability to compete on a level playing field.

The second is considerably more interesting: the company that reasonably complies with applicable legislation, but whose legal structure does not adequately correspond to the reality of the business. The legal response arises case by case, as a reaction to the company's needs.

And the third is the legally structured company: one whose corporate, contractual, asset, and governance organization has been deliberately designed or that, if it was not conceived that way from the outset, has incorporated the measures and corrections needed to accompany its operation and its objectives. It is a proactive, flexible structure, capable of adapting.

The deficiencies of the first two categories usually go unnoticed. There is not necessarily any illegality. What exists is a structural legal misalignment and, with it, the consequence that the legal architecture did not evolve at the same pace as the business.

II. The problem of conceiving business law as a collection of documents

Part of this difficulty comes from a traditional approach to legal services, a responsibility that also falls, to a large extent, on those of us who offer them as legal professionals.

In response to certain needs, documents are produced that end up becoming a checklist of tasks: the company is incorporated, the shareholders' agreement is drafted, operating licenses are requested, and trademarks are registered. Each document or task may be legally correct and yet, taken together, the whole may lack coherence.

The problem appears when we analyze each instrument independently, as if they were islands, and stop looking at the company as a system.

A company is not simply a commercial entity. It is an economic structure within which owners, managers, workers, clients, suppliers, financiers, assets, debt, information, technology, and different sources of risk all interact. If, from a legal standpoint, a legal person comes to life, it is no fallacy to affirm that it also evolves, changes, and even dies.

The law determines, directly or indirectly, much of the relationship between these elements and of the company's own architecture. For that reason, legal structuring should be analyzed from a systemic perspective.

Contemporary corporate governance standards point precisely in this direction. The G20/OECD Principles include among their components the rights and equitable treatment of shareholders, disclosure and transparency, and the responsibilities of governing bodies, including within the latter the oversight of risk management.¹ For its part, the International Finance Corporation (IFC) stresses that good corporate governance contributes to more efficient operations, improves access to capital, and helps mitigate risks.²

Law, in a strategic sense, then ceases to function exclusively as a reactive mechanism intended to resolve conflicts and becomes a powerful tool that supports the infrastructure of the business organization.

III. When can a company be said to be well structured in legal terms?

Before attempting to answer this question, I would pose a prior and more complex one: is there coherence between the way the company works economically and the way it is organized legally?

This perspective forces us to observe several dimensions simultaneously.

1. Ownership structure

There must be clarity as to who owns what, but also as to the economic and political rights associated with that ownership.

The share structure suitable for starting a company will not necessarily be suitable when investors come in, external financing exists, the operation goes international, or the need for a generational transfer arises. These are processes the structure must anticipate, with the assistance of a technical-legal advisor who understands the business model and can identify a global and clear picture of the company.

2. Governance and decision-making

It must be determined who can decide, on which matters, within what limits, and through which control mechanisms.

A company in the process of scaling or transformation, or that has already reached a certain degree of maturity, progressively differentiates ownership, management, and oversight. The IFC has developed specific frameworks for small and medium-sized enterprises and for family businesses, on the premise that governance needs and structures must evolve and adapt to the different stages of the organization's growth, development, and complexity.³

3. Contractual architecture

The expert legal advisor must ensure that contracts reflect the company's operational reality and properly allocate rights, obligations, and risks.

The existence of a contract is not enough. It is important to confirm that the contractual instrument corresponds to the operation that actually takes place.

4. Protection and ownership of assets

The assets critical to the continuity of the business must be identified, along with a determination of who legally owns them and how they are protected.

In today's economy this comprises not only physical assets, but also trademarks, software, databases, methodologies, content, trade secrets, contractual rights, and other intangible assets, as well as digital assets such as cryptocurrencies, tokens, and any other investments or assets owned by the company.

5. Risk and compliance

Compliance should not be conceived exclusively as a reaction to regulatory obligations.

Different jurisdictions address their know your client (KYC) and anti money laundering (AML) processes in accordance with their respective regulatory frameworks; however, from a more general perspective of organizational compliance, reference can be made to the ISO 37301:2021 standard, which conceives compliance as a management system that must be established, developed, implemented, evaluated, maintained, and improved within the organization.⁴

The consequence is significant: legal risk cannot be adequately managed if it is analyzed separately from the business decisions that generate it.

6. People and knowledge

There must be clarity regarding relationships with employees, executives, contractors, and key people. This dimension does not belong exclusively to human resources, because it also requires analyzing where the organization's critical knowledge resides.

When essential processes, commercial relationships, access credentials, methodologies, or strategic information depend exclusively on the founder or on certain individuals, there is a business risk that also has a legal dimension. Processes and protocols must be clearly defined, especially when they involve sensitive information.

7. Continuity and contingencies

A final aspect I want to address, without claiming to exhaust the list, is the need to attend efficiently and proactively to certain key contingencies.

The starting point is to ask what happens when things do not go according to plan: what happens if a shareholder dies? What happens if two partners stop agreeing? What happens when the company is sold?

Our message is that a structure that only works while everyone agrees is not necessarily a good structure.

IV. From legal compliance to legal coherence

Our analysis allows us to formulate a different criterion for evaluating a company in legal terms, on the assumption that legality, legal efficiency, and strategic fit are not identical concepts.

Under this approach, the quality of any company's legal structure could be analyzed on the basis of what we call the criterion of business legal coherence: that is, a company's legal structure must reasonably reflect, protect, and enable its economic structure, its decision-making system, its critical relationships, its essential assets, its risks, and its strategic objectives.

This way of observing the business world broadens the role of the business or corporate lawyer. Their work is not limited to determining whether an act is legally valid; they must also ensure that the resulting architecture is adequate for the company being built.

Given all of the above, the immediate question every company should ask itself is clear and direct: are we legally in order?

But we must go even further:

Does our legal structure correspond to the company we really are and to the company we intend to become?

A suggested first step is a corporate technical-legal audit and, based on its conclusions, defining the strategic initiatives that follow.