Tangible Business Outcomes to Expect With Top-Tier Entity Management Practices

In the last survey by Ernst Young, 89% of legal departments reported challenges with their entity management. Given the spiraling change in the regulatory landscape and an ever-growing number of legal entities, these concerns make implementing the most advanced entity management software a priority task.

To this purpose, setting out clear goals for implementing new technology from day one is an important part of any project plan to ensure adoption. Understanding the outcomes provides direction and guidance and helps to determine whether the objectives were achieved. Below are the most important businesses outcomes that can be expected by implementing top-tier entity management practices, including deal readiness, risk control, cost management and service levels, and why these outcomes are important.

Deal Readiness

With the increased importance of M&A deals for corporate strategies, organizations are looking into ways to speed-up decision-making, expand their due diligence and win the trust of buyers. Still, it is often easier said than done in the absence of solid entity management practices.

According to the 2021 report by Deloitte, titled The Value of Entity Management, poorly maintained legal entities can cause a host of problems, starting from gaps in documentation and ending with the credibility of the company and its management. The subpar entity management increases the deal risk, drives up the outside counsel costs, pushes the deal price down and cuts profits.

Meanwhile, companies leveraging top-tier entity management software and adhering to best practices gain a competitive edge and enjoy multiple benefits during their deal-making processes. When legal entities are well-managed, buyers have greater confidence, while assessment and due diligence are expedited.

Since buyers have fewer concerns about potential liability, risks and potential red flags, eliminated through the application of best entity management practices, they are motivated to come up with a better offer. Meanwhile, having all required corporate records in place helps to control legal fees and have better margins.

Risk Control

The rapid growth in the number of legal entities and the quickly changing regulatory environment present increased compliance risks. These risks are multiplied in the presence of issues with entity management, such as non-compliant director appointments, dormant and forgotten legal entities or poor structuring.

At the same time, the consequences for non-compliance have increased dramatically over the last few years. Where previously companies could face business interruptions and reputational damage, now the law sets severe civil and criminal penalties. What is more, the most punitive jurisdictions are frequently the hardest to navigate, as noted by the TMF Group in its Global Business Complexity Index.

For example, the US Corporate Transparency Act sets a $500 daily penalty for violations related to reporting obligations, with individual fines amounting to $10,000 and imprisonment terms of up to two years. Following a global trend towards transparency, regulators have initiated similar measures in other jurisdictions, so in many European countries, the law already sets similar liabilities.

At the same time, it is a recognized fact that entity management software reduces risks due to providing better visibility and automating compliance. Legal professionals who work with entity management platforms leverage compliance calendars and useful reminders to ensure that their reporting obligations are met. Meanwhile, having a central database for corporate records helps to update information in real time and automate filings.

Cost Management 

When legal professionals employ modern entity management software, it has a double effect on costs. On the one hand, it helps control the time spent on routine manual tasks and organize workloads. On the other hand, organizations can centralize the coordination of local service providers and achieve better cost control.

The enhanced workflows and automation made possible by applying effective legal technology help to cut inefficiencies and avoid duplicative work and disorganized processes. By decreasing time spent on manual searches and filings through better data organization and automation, entity management software helps legal departments manage costs while improving the quality of legal work.

Most importantly, legal technology helps lawyers manage costs by centralizing entity management coordination. As organizations grow and create legal entities across multiple jurisdictions, they tend to partner with local law firms to navigate local markets. While this approach can provide certain benefits, in many cases, it makes costs difficult to manage. 

Today, more and more organizations look to work with a single provider who leverages local experts while offering an economy of scale, better cost transparency and cost management. Meanwhile, global providers need the most effective legal technology to manage thousands of legal entities while making it easier to identify and control legal costs.

Service Levels

When legal teams are assisted by effective entity management software, they can greatly increase their service levels and productivity by avoiding wasting time and resources on routine and duplicative tasks. Instead of focusing on risk-centric and reactive services, legal professionals can zero in on proactive and strategic work.

By adopting top-tier entity management practices and technology, legal teams can go beyond mere compliance. When organizations have a central source of truth for all corporate data and governance documentation, the impact of enhanced service levels is felt by all stakeholders, including the shareholders, the board, and the financial and tax department, who can rely on accurate data updated in real time. 

In Summary

With entity management having an impact on virtually all areas of a corporation, including contracts and transactions, M&A, tax compliance and finance, organizations need the most advanced legal technology to address the ever-changing regulatory landscape. As the number of legal technologies used by lawyers is constantly increasing, law firms and in-house legal teams need top-tier entity management software to stay on top of the industry trends and avoid being left behind by the competition.

The adoption of the best industry practices provides lawyers with multiple benefits, including deal readiness, better risk control and cost management, as well as the ability to improve service levels. For more information about the benefits of working with modern entity management software, please don't hesitate to contact the Athennian team to request a custom demo with our experts.

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