Understanding Companies
Why use more than one company?
A company is a collection of assets that you define as you prefer; it is not necessarily a legal entity. For example, you might want to define a company for the assets in each department or in each location of your organization. You store companies in one or more databases.
Even though you can group assets within a company, there are still many reasons to create separate companies for different groups of assets. Reasons for organizing your assets into multiple companies include the following.
Multiple Legal Entities
The most obvious reason for creating multiple companies to track assets is if your organization tracks or owns assets for separate legal entities. In this case, you would want to create at least one company for each of the legal entities.
Mergers and Acquisitions
If the legal entity that is your organization has merged with another organization or has acquired one, you might want to maintain the assets for these entities in separate companies.
Different Fiscal Year Ends or Short Years
Fiscal year ends and short years must be the same within a single company. If this is not true for the different reporting units within your organization, you must create separate companies for each reporting unit.
Decentralized Corporate Structure
If the culture of your organization is decentralized, or if different organizational units maintain autonomous jurisdiction over assets or accounting, or if they track and report to a central authority separately, then you will want to create separate companies for each of these organizational units.
Multi-State Organization
If your organization owns assets in multiple states that require unique calculations, then you might need to enter these assets into different companies. You have one default state tax book. You also have user-defined books that you can use for different state tax books. So, depending on how many states your organization has assets in and how many user-defined books you have used for purposes other than state tax books, you might need to create separate companies for those assets or for additional State books.
Large Number of Assets
The application processing speed depends on how many assets you store in your working database. Many functions in the application process all data in all companies in the working database. Therefore, if you maintain many assets (more than about thirty thousand), to gain optimal processing speed you should organize them into multiple companies stored in multiple databases. For example, you might organize your assets according to the reporting structure for different areas of your organization based on accounting principles.
Strict Separation of Asset Classifications/Diversified Products or Markets
Even if your organization is centralized and accounting is controlled by one umbrella administrative unit, you might want to create separate companies for your assets if the assets are strictly divided by classification. For instance, one arm of your organization may be devoted to manufacturing and another to medical supplies.
When to Keep Assets in One Company?
Many of the situations outlined above are special situations. If your organization does not fit into any of the above situations, then you probably want to store all your assets in one company.
Use one company to store assets if:
- Your organization is a single legal entity
- Your organization has a centralized management and accounting structure
- Your organization does not have diversified products or markets
- All units in your organization have the same fiscal year end and short years
- Your organization has a relatively low number of assets (say less than thirty thousand).