Today, organizations are creating new subsidiaries in increasing numbers to manage liability and risk exposure, minimize tax burden and address regulatory and licensing requirements. When the number of subsidiaries multiplies, companies have to either spend more and more time and effort on managing new entities or seek effective systems to address their governance and compliance most effectively.
Although entity management is by no means new, many of its aspects are often overlooked, while legal teams keep using ineffective legacy processes to ensure compliance. This report highlights the goals of entity management by answering how it affects businesses as a whole and provides an overview of existing practices as well as the benefits of leveraging entity management software.
The Goals and Implementation of Entity Management
At the bare minimum, entity management must ensure that all legal entities belonging to the organization are in good standing and compliant with applicable regulations for statutory filings.
Although individual legal entities can have their own statutory obligations depending on their tax structure and jurisdictions, most of these obligations are similar in nature. Typically, the list of these requirements includes:
- formation filings,
- annual filings,
- safekeeping corporate records,
- filing changes of registered address,
- reporting changes of directors,
- reporting changes of ownership,
- other event-driven filings,
- complying with licensing requirements.
An effective entity management solution should also address the governance needs of organizations by ensuring that subsidiaries abide by the governance requirements of the parent company. The ideal entity management system serves as a single source of truth for company records and enterprise-wise policies, providing for governance reporting.
Why an Effective Entity Management System Plays a Key Role for Compliance?
Without effective entity management, organizations face all sorts of problems starting from repetitive and redundant work and ending with compliance issues, penalties and business disruption.
If an organization lacks modern entity management technology, corporate paralegals have to rely on manual processes and work in spreadsheets, which leads to inconsistencies, human error and inefficiencies. When companies don’t' leverage a central digital repository for keeping their corporate records and rely on a physical minute book, they lack access to their corporate data and practice siloed approach. Meanwhile, devoting time and resources to exchanging and copying paper documents, getting physical signatures, or safekeeping paper documentation makes entity management absolutely inefficient.
When the number of legal entities grows exponentially, the manual approaches cause inefficiencies and lead to non-compliance and penalties, business disruption and reputational damage. Missing a filing date or errors in corporate records are all too easy when corporate paralegals oversee hundreds of legal entities without access to effective automation tools and legal technology. At the same time, these smaller omissions and easy-to-do mistakes can lead to penalties and even business dissolution.
Instead, businesses who switch from manual processes to entity management software can streamline their compliance by:
- updating data in real time,
- cutting human error by migrating from spreadsheets,
- creating a single source of truth for corporate records,
- leveraging compliance calendars and reminders,
- automating workflows.
Governance
Legal governance within an organization is a critical facet of an organization. Without having a centralized database for pertinent information, the ability to compile and control corporate records can be hindered. This included governance related to directors and officers, tax strategies, corporate names, merge
The Importance of Entity Management for Governance
Companies can only ensure governance across the whole organization and various jurisdictions when they have a single source of truth for corporate policies. When the number of legal entities is constantly increasing, it is hardly possible to ensure internal compliance with corporate guidelines in the absence of a central database with extensive functionality.
Such a database should extend beyond storage and remote access and include functionality for making modifications to and enforcement of governing documents as well as governance reporting. Needless to say, it is only possible when the company employs a robust entity management system, integrating the central database, encompassing all legal entities of the organization.
How Does Entity Management Affect Other Areas of the Business?
Today, many organizations expect their entity management systems to expand beyond governance and compliance issues. They need better visibility into their operations, better data for decision-making and instant access to their records for transactional work.
By shifting to a virtual minute book and enabling a search function for corporate records, businesses provide their team with instant access to necessary data, cutting the time for retrieving information from lawyers. They can also enable access to data for auditors and third parties and streamline their transactional work.
As more and more organizations pursue M&A deals, companies need to improve the quality of their entity management to have a better value of the transaction. When project teams have access to entity management software, they can cut time on due diligence and improve organization deal readiness. This results in smoother transactions, increased confidence, higher offer and a better outcome for the seller.
The shareholders, the board and the management team seek better insight into their operation, full visibility of the whole structure and access to corporate records. Modern entity management software can provide the decision-makers with necessary information at a click of a button, leveraging the org charting module to have a birds-eye view of the whole structure. For example, the org charting capabilities of Athennian entity management software provide instant visual information about:
- jurisdiction of each legal entity,
- the tax structure of subsidiaries,
- percentage of ownership,
- upward and downward connections between legal entities,
- historical data at a specific date.
Learn More About Effective Entity Management with Athennian
In the year 2022, lawyers mention entity management as a priority in light of the ever-changing regulatory landscape and the global trend toward transparency. Since the majority of organizations still rely on outdated processes and paper documents, entity management is the top concern for legal professionals who have to ensure corporate governance and compliance within the existing framework.
Today, more and more lawyers and businesses turn to legal technology to improve their processes and move their entity management to the next level. If you are interested in learning more about how entity management software has become a game-changer for law firms and in-house legal teams handling corporate governance and compliance, please don't hesitate to contact the Athennian team for a customized demo.
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