As organizations evolve, expand, and adapt their business models, companies change their structures, add and remove legal entities across jurisdictions, and explore new strategies. These shifts make businesses rethink their approaches to entity management and consider other options beyond in-house capabilities. Below we discuss the role of entity management in the modern business landscape and compare in-house, outsourced, and hybrid entity management frameworks.
Understanding Entity Management in the Modern Business Landscape
Entity management is a multidisciplinary endeavor aimed at a minimum to ensure that each business entity in the organization is in good standing and compliant with regulatory requirements. In a broader perspective, entity management extends beyond mere regulatory compliance and includes other critical functions, including:
- helping organizations achieve their goals through corporate governance strategies,
- aligning the organization with regulatory trends,
- implementing risk management strategies,
- ensuring transparency of corporate structure,
- streamlining transactions, deal-making, and M&A,
- leveraging corporate records as a strategic asset.
n the modern business landscape shaped by global organizations, entity management becomes critical for pursuing business goals and ensuring sustainable business growth. The evolving regulatory requirements, such as global tax reform, AI regulations, governance codes, sustainability directives, or sanction regimes, add to the challenge. Under these circumstances, organizations naturally seek to enhance their entity management frameworks by expanding or supplementing existing capabilities with new systems, toolsets, and resources.
The In-House Model
Managing corporate entities in-house has been a traditional approach for many organizations of all sizes for multiple reasons. When an organization has only a few legal entities in its business structure, most often entity management is implemented in-house without involving external teams. As the organization expands, it may choose to stay with the same approach drawing on the advantages of its in-house management framework.
When entity management is implemented internally, a company reduces entity risks by keeping all its corporate records in-house. The compliance teams and other stakeholders are focused on company goals, which help to prioritize critical tasks and streamline processes. In addition, organizations can achieve quicker turnaround by practicing a direct hands-on approach to their entity management without involving third parties, especially when assisted by legal technology.
The downsides of the in-house model include the necessity for adequate resource allocation to stay on par with the ever-changing regulatory requirements and challenges faced by the organization. Companies choosing to run their entity management internally have to constantly assess the impact of new regulations, implement change management and training, foster early adoption of regulatory trends, and implement continuous monitoring and improvement.
The Outsourced Model
As organizations grow, some companies choose to hand over the burden of entity management to third-party providers. Businesses opting for this strategy, often seek to obtain access to external expertise not available within their organizations or achieve cost efficiency through economy of scale.
If entity management is outsourced, organizations can focus on their core business and rely on the expertise of their providers for record keeping, filings, monitoring, and adapting to new regulatory requirements. They can also expand capabilities, improve their audit- and deal-readiness, and streamline their transaction work.
While outsourcing compliance can result in lower costs, the setbacks of outsourced entity management can include dependence on third-party providers for critical functions such as governance, transparency, data safety and security, record keeping, and sensitive reporting. Organizations aiming to avoid losing control of their critical functions and reduce third-party risk can mitigate these consequences by running due diligence when choosing providers or practicing a hybrid approach to entity management.
The Hybrid Model: Best of Both Worlds
The hybrid model, involving internal and external entity management frameworks, is able to deliver the organization the best of both approaches. Following this model, organizations can risk-proof their business by keeping the mission-critical functions in-house while outsourcing other areas of entity management to third-party vendors.
For example, companies may opt to retain specific functions of strategic importance, such as governance or sensitive compliance that call for internal oversight. At the same time, businesses can outsource functions where third-party vendors can help achieve higher speed, better quality of corporate compliance programs, and economy of scale by access to advanced technology and possession of specialized expertise.
Learn More with Athennian
The choice among in-house, outsourced and hybrid models for entity management depends on multiple factors, including the organization's size, structure, jurisdiction, and business's current growth stage. Companies need to consider the pros and cons of each model to choose the most optimal framework and run due diligence on third-party providers when they decide to delegate their entity management processes.
Whether organizations lean towards running their compliance work internally, outsourcing some or all of their functions to external providers, or leveraging a hybrid model, running entity management with Athennian empowers teams with automation tools and best-of-breed technology. For more information about the benefits of Athennian legal entity management software, please don't hesitate to get in touch with our team to request a free demo.
.png)
.png)
.png)
.png)
