Entity management cannot be defined in a sentence or two because it’s a complex system that involves many people and processes for each entity. But the complexity of legal entity management is precisely why many corporations fall down on the job when it comes to managing all aspects of the corporation and its entities, sometimes getting themselves into trouble with compliance matters.
To help you better understand entity management and how it can position you to prevent costly compliance missteps, this article will explain:
- What entity management is
- The role different departments play in the entity management process
- Why legal entity management is important
- Common challenges of entity management and how software can help
- Entity management best practices
Defining entity management
Entity management (or ‘legal’ entity management) is the collection of a business’s corporate record. This can be defined as information that details anything, including business changes and structure. More specifically, the information regarding mergers, acquisitions, corporate names, legal structures, owners and directors.
In short, entity management is creating a single source of truth to better manage the evolution of compliance and tax regulations, unknown regulatory changes, and associated costs for all legal entities within an organization.
Who is involved in entity management?
Legal entity management involves a corporation’s governance, compliance, tax and legal departments, including the general counsel, corporate secretary, a company’s paralegals and all tax department members.
Most, if not all, entity management duties of these departments include:
- Regulatory compliance
- Administrative maintenance
- Monitoring of internal record-keeping
The above departments manage the inflow and outflow of information, reports and documents that inform the corporation’s transactions and filings.
In addition to significant internal corporate departments, many employees like managers, board directors, audit committees and regulators regularly request corporate data throughout the business week.
Why is legal entity management important?
Entity management is important because it’s central to compliance. Your organization must walk a fine line to adhere to local, state and country laws. In order to make sure that your operations don’t violate any rules or regulations, it’s imperative to understand how corporate entity management helps you remain compliant.
- Proactive governance reduces reactive compliance: If your organization chooses to put strong entity management at the center of its subsidiary management strategy, your organization will more easily comply with regulations as you expand your operations regionally or globally.
- Cut down on risk: This approach will help you reduce risk for your legal subsidiaries, and this should save your organization a lot of time with financial, legal, environmental, reputational and safety matters for more streamlined governance.
- Create a single source of truth: Different departments may handle different types of data, but they all need visibility into the entire organization. When you rethink the process of entity management, legal, HR, tax and finance teams will have access to the right data at the right time to address risks more quickly.
- Make data more actionable: More data is only better if you have the right resources to manage it, primarily because data decays over time. Entity management puts your teams in a more strategic position because they can turn data into insights, then deliver those insights to senior leadership and the board — enabling more informed decisions across the organization.
Challenges of entity management
Entity management can be challenging, not just because of the sheer amount of information companies must manage. Many key members of the organization will also request that data, which complicates the task even further.
Some other entity management challenges include:
- Corporate secretaries and paralegals need entity data in real-time: Corporate secretaries and paralegals get bogged down with requests for hundreds of documents daily, many of which are time-consuming to access because they are heavily encrypted and have unique data points. More importantly, they need much of the data in real-time, which isn’t possible in many cases, unless the company has sophisticated systems. Corporate secretaries also play an important role as advisors, so having a formal system gives them faster access to documents and data.
- The breakdown of information-management requirements: Because many people, departments and processes need or manage corporate data, it helps to assign which people or departments are responsible for maintaining certain pieces of information. Every corporation has unique operating needs, so this breakdown of duties will vary by organization.
Benefits of better entity management
Nearly 50% of companies still rely on spreadsheets to oversee their auditing and controls, but managing entities is complex. Streamlining entity management is becoming a viable and popular way to manage entities efficiently and effectively.
In the governance world, having the right tools, insights and analytics is the only way to get a competitive edge to remain compliant and ensure all entities follow local jurisdictions.
But that’s the first of many benefits to strengthening your legal entity management program. Other benefits include:
- Increased access to data: Software programs for entity management develop a system of storage, cycles and notifications. These systems allow multiple parties to access the information they need while disallowing users who don’t need access to information.
- Reduced human error: Software solutions specifically for entity management can respond strategically while keeping costs at bay. Automation alleviates some of the intensifying compliance and regulatory pressures related to human error.
- Streamlines operations: Multifaceted systems manage complex needs much more efficiently and accurately than multiple staff in multiple departments can do on their own.
- Cuts costs: While there is an investment in the system and in managing the system, corporations will realize savings with higher quality, timely compliance and increased oversight without hiring additional staff to manage these tasks.
5 entity management best practices
Efficient and effective entity management saves time, avoids mistakes and makes it easier for your entities to achieve their business goals. If you aren’t up-to-date on entity management tools and best practices, your competition could pull ahead in this ever-evolving, complex global economy.
With that in mind, we offer five essential entity management strategies to incorporate into your governance operations:
- Centralize compliance, regulatory filings and record-keeping: Missing regulatory filing deadlines, ignoring compliance and sloppy record-keeping, at best, will slow your business growth and, at worst, can threaten the health and future of your business. Centralizing this data can ensure that stakeholders know what needs to be done and when and have the tools to execute their business functions.
- Support directors in their responsibilities: To stay competitive, your directors must possess appropriate expertise and skills and avoid conflicts of interest. Entities must ensure they comply with director independence regulations and restrictions on the number of directorships. Directors benefit from ongoing training about their responsibilities, potential conflicts of interest and governance tasks. Secure, ongoing and appropriate communication among directors, employees and shareholders is essential for directors to fulfill their ongoing responsibilities.
- Create a framework: Superior entity management doesn’t happen by accident. Your organization must construct a workable framework for all of your users so they can access the information they need. That also means that users are authorized to access information essential for their function but not information outside of this. An effective framework must start at the top. Key stakeholders, including board members and corporate secretaries, must buy into the process and the system.
- Empower the corporate secretary: The corporate secretary plays a central role in corporate management, governance and compliance. Organizations that empower their secretaries to act proactively can stay ahead of the curve.
- Leverage technology for compliance: Technology can bring order to your entity management processes. It’s best to choose a solution that easily integrates with your existing systems and stays current as compliance and regulatory requirements evolve.
Turn entity management into a standard business practice
Organizations need to have clear oversight and control over everything they do, which has made entity management an essential — yet complex — function.
Many boards know that they need to invest in entity management, but they don’t know how to streamline entity management so that it becomes standard in their organization’s day-to-day.
Discover even more about good entity governance and how to supercharge your growth and profits by implementing a technology-driven approach to entity and subsidiary management. Download the white paper from Diligent to learn more.
