How Do Legal, Tax, & Finance Departments Gain a Competitive Edge in 2023?

If your department experiences challenges with entity management or relies on finance and tax teams to complete compliance tasks, you are not alone. According to the EY report, 90% of organizations have concerns about their entity management, while most of them have to pull resources from tax, finance and accounting departments to address their compliance-related needs. 

The studies also show growing dissatisfaction among professionals and their clients about how their entities and subsidiariesare managed. From lawyers' perspective, this results in collective anticipation for increased investments in entity management solutions within the next 12 months, as evidenced by the Wolters Kluwer study in 2022.

Still, some departments rely entirely on physical documents, while others use both paper and electronic databases. These practices lead to all sorts of issues, including duplicate work, inconsistencies, inaccurate records, late filings and non-compliance. 

Today, many tech-savvy lawyers already embrace technology reaping the benefits of their competitive advantage. Still, the majority of corporate legal, tax, and finance departments are stuck with antique processes, inefficiencies and legacy tools which are no longer capable of addressing the existing challenges.

Common Challenges Faced by Legal, Tax, and Finance Departments

It was not so long ago that the most severe penalty for delinquent entities and subsidiariescould result in business interruption and reputation damage in the worst-case scenario. But with the latest trend for ownership transparency, organizations failing to do timely filings face severe fines amounting to thousands of dollars. What is more, in many jurisdictions, directors and shareholders of non-compliant entities can face prison sentences.

When such a simple event as removing a director impacts hundreds of corporate documents, it comes as no surprise that organizations relying on manual processes face serious compliance and efficiency issues. When professionals  rely on outdated solutions like spreadsheets or keep their minute books in paper form, they simply cannot cope with the increased workload or provide for sustainable growth.

On the other side of the spectrum, poor entity management leads to low deal readiness, decreases credibility and, consequently, undercuts the company's value for M&A transactions. According to the report from Deloitte, 15% of larger organizations with a global revenue of over 5 billion dollars had their transactions or strategy initiatives negatively impacted by non-compliance issues.

How Do Lawyers Cope with the New Demands for Compliance?

Deloitte's study shows that, for the moment, lawyers are split on their approach to entity management, with 10% relying entirely on physical documents, 43% using both physical and digital formats, and only 40% embracing digital entity management solutions. Interestingly, this statistic correlates with other reports showing that over the past two years, approximately 20% of entities were not in good standing with the regulators.

The global trend toward transparency, the harsh penalties for non-compliance and the ever-increasing number of entities and subsidiariesmake corporate teams look for solutions which could address the existing compliance requirements. Instead of throwing more people and hours into entity management, which would only multiply inefficiencies and inconsistencies, corporate teams now view entity management software as one of the most important technologies for the industry.

Expectations for Entity Management Software

At a minimum, lawyers expect the entity management software to work as a central database for all managed entities. Such a database should include key information, for example, the date of formation and jurisdiction, ID numbers, directors' details, beneficial owners' details, reporting dates and other basic information. 

In a modern environment, professionals need to access such central database remotely from any device and enable shared access with other actors, including third parties, directors and auditors. This requirement calls for implementing a secure and compliant cloud-based solution that would provide remote work while ensuring the all-time safety and security of corporate data.

By implementing automated entity management solutions, lawyers expect to achieve several benefits which are no longer nice-to-have but already must-haves in today's rapidly changing environment.

1. Automating Compliance

When teams manage a number of entities across various jurisdictions, automation of routine tasks becomes the priority. Lawyers expect entity management solutions to provide them with compliance calendars, reminders about filing deadlines, document generation functionality and task automation tools.

2. Transaction Readiness

With the current expectation from 49% of companies to pursue M&A deals in 2022, lawyers aim to increase their clients' deal readiness. In doing so, professionals need to cut time for due diligence and audit while increasing the investors' trust and thereby improving the outcome for the sellers. 

3. Reducing the Risk of Human Error

By switching from outdated processes to modern technology, lawyers seek to eliminate human error, which is inevitable when working in spreadsheets. Meanwhile, it is a well-known fact that 9 out of 10 spreadsheets contain errors that could otherwise be avoided with modern automation tools.

4. Document Management

When organizations start running their minute books in the digital format, they enable instant access to corporate records for shareholders, directors, auditors and their teams.

By enabling search and cross-reference functions, virtual minute books save professionals and other team members considerable time, which is otherwise wasted on retrieving information from disorganized sources.

5. Increased Efficiency

In the quickly changing corporate environment, lawyers can no longer afford to spend hours creating new entities, making filings and addressing other routine tasks. Instead, professionals seek automation tools that would save time through auto-populated forms, automated filings and a central database with information updated in real time.

Learn More About the State of Entity Management with Athennian

Modern entity management software has much more to it because today's market expectations reach far beyond simple compliance issues.  Today, lawyers, boards and shareholders expect instant access to their corporate data for deal-readiness and transactional work and better information for decision-making. And they can achieve these and other benefits by switching to modern entity management software.

This report is largely based on the latest ebook by Athennian on the State of Entity Management, referencing cited studies by Deloitte, Ernst and Young, Wolters Kluwers and other organizations with detailed statistics related to the industry. The book further dissects current issues faced by professionals involved in entity management and offers a deeper introduction to automation tools, their benefits and functionality. For detailed statistics and more information about the market expectations for entity management software and the benefits of automation tools, please don't hesitate to download the full text.

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