Legal Considerations for Shared Services

Once IT leaders agree that they want to form a shared services outfit, the first thing they should do from a legal standpoint is determine the corporate structure that best fits the business model that participants have in mind, says Rob Scott, managing partner with the technology law firm Scott & Scott.

Scott says that limited liability companies tend to work well because they provide participating organizations with the flexibility of a partnership along with some of the legal protections of a corporation.

To read more on this topic, see: From Cloud Computing to Shared Services: Why CIOs Are Taking a New Look at Sharing IT Infrastructure and Applications and Public Cloud: New Cloud Marketplace for Hosted Server Capacity.

Think carefully, too, about whether you want a for-profit or nonprofit company. InterContinental Hotels Group CIO Tom Conophy thinks a for-profit model may work better than a nonprofit because the shared services organization and the participating partners would have greater incentive to invest in new technologies and otherwise improve its operations.

On the other hand, NetHope, which provides shared technology services to many international relief organizations, is set up as a nonprofit to reflect the mission of its members. “You don’t achieve [that] designation unless you’re giving something back to the community,” says Ed Grainger-Happ, U.S. and U.K. CIO with Save the Children, a NetHope member.

Participants in shared services organizations should also plan for dissolving the entity, says Scott. Action items should include determining how to distribute proprietary information housed by the entity, who—if any of the members—has the right to use the trade name for the group and who’s responsible for any “wind-up” costs before shuttering the business, he says.

Thomas Hoffman is a freelance writer based in New York.