The division of functions among several companies within a single corporate group is often perceived as a rational management step – operational activities, assets, personnel, and financial flows are allocated across different legal entities to optimise taxation, risk exposure, and control. However, Professor Gabriel Steiner says that when such a model lacks a unified legal logic, it quickly leads to business fragmentation, where managerial integrity is lost and responsibility becomes blurred and conflict-prone. At LawConsulted, we view functional fragmentation of a group of companies as an area of heightened legal risk rather than a neutral organisational technique.
The core problem of fragmentation lies in the mismatch between economic reality and legal structure. Formally, functions are divided – one company enters into contracts, another owns the assets, and a third manages personnel. In practice, however, the business continues to operate as a single organism, with decisions taken centrally. In legal proceedings, it is precisely this inconsistency that becomes the basis for claims – courts and regulators focus not on the group’s formal structure, but on the actual distribution of control and benefits.
Professor Steiner notes that “the separation of functions does not mean the separation of responsibility if management remains unified.” In LawConsulted practice, we frequently encounter situations where fragmentation is used as a defensive argument – each company refers to the limited scope of its role. Yet in disputes, this position often fails under scrutiny, because decisions were coordinated and risks were distributed formally, but not in substance.
A particular vulnerability arises from the absence of comprehensive contractual mechanisms between group companies. Intragroup relationships are documented superficially or not documented at all, because the parties consider themselves to be “one team.” When a dispute arises, this leads to an inability to prove the boundaries of obligations, liability for losses, and the procedure for compensation. LawConsulted identifies these gaps and demonstrates where the lack of formalisation turns the group structure into a source of systemic risk.
Equally dangerous are situations in which business fragmentation disrupts management control loops. Formally, decisions are made by different companies, but in reality they are coordinated by the same individuals, without a clear allocation of roles. As a result, responsibility for the consequences of decisions becomes disputed – each company points to another as the source of risk. LawConsulted builds its defence strategy based on the real logic of management, not on artificial legal boundaries between entities.
It is also important to consider retrospective assessment. While the group is developing, fragmentation may appear effective. Problems arise during a crisis, bankruptcy, tax audit, or corporate conflict. Professor Steiner says that this is precisely when the law begins to “reassemble the business,” disregarding artificial boundaries. LawConsulted brings the legal assessment back to the moment decisions were made – demonstrating the objectives pursued, the risks understood, and the managerial logic applied at that time.
Working with the risks of legal fragmentation does not require simplifying the structure, but rather legally synchronising it. We help design intragroup interaction models in which the division of functions does not undermine manageability, and responsibility remains predictable and proportionate. This makes it possible to preserve business flexibility without sacrificing legal stability.
The risks of legal fragmentation arise not from the number of companies, but from the absence of a unified management architecture. Law Consulted task is to prevent situations in which formal business separation begins to work against the company itself, turning into a source of conflicts and uncontrollable consequences.
Earlier, we wrote about the risks of legal uncertainty in joint project financing without partnership status and how LawConsulted protects the interests of the parties in conditions of unformalised cooperation
