Entity management is a method of integrating corporate duties like regulatory compliance, administrative maintenance, and monitoring of insider trading and internal record-keeping activities. It involves an organization’s governance, compliance and legal departments, who manage the flow of information in and out of a company, while producing documentation and reports that can inform every transaction and filing.

People began to talk about legal entity management (LEM) as a specific subset of entity management science back around 2013, when the Organization for Economic Cooperation and Development (OECD) adopted its Action 13, which included a number of new rules for implementation of country-by-country entity reporting in order to start getting a handle on actions that were deemed profit-shifting to avoid taxation, which contributed to erosion of the individual OECD countries’ economic bases.

Since then, we’ve seen Brexit, which has forced companies to establish legally distinct entities at the British and European levels, and President Trump’s tax law, which commits the US federal government to cracking down on profit-shifting like never before. These and other major policy shifts in a climate of global political turbulence make developing a specific legal strategy for entity management incumbent on multinational organizations. This post is meant to break down some of the basics of such a strategy.

Central to the strategy of LEM is the database that contains all the registrations, filings, lists of corporate boards, ownership information for each entity, etc. In this post, we’ll be talking about how your organization can use a software platform to make your LEM framework excel and, by establishing the single authoritative source of data truth contained in a legal entity database, put yourself on the road to a worry-free strategy to regulatory compliance.

Legal Entity Management

Legal entity management, as distinct from the rest of the operations that constitute an entity management strategy, are the processes that handle regulatory compliance and administrative maintenance on an ongoing basis, particularly the functions typically handled by the legal, compliance and/or governance departments. Financial regulations in the US, Europe and worldwide enacted since the financial crisis of 2008 imposed new record-keeping and reporting requirements. These rules have greatly increased the scope and complexity of what organizations are expected to monitor and report on to their leadership, governments and shareholders.

For example, it’s normal for the legal department of a multinational company to be engaged in fielding dozens of requests in a single day about the details of ownership for international entities, for example, when leadership is planning a reconstruction or expansion. Legal entity management keeps all these data in one place, at the fingertips of the people who need access to it. It also helps companies stay up-to-date on their fiduciary, regulatory and statutory responsibilities, give the leadership advice on the best practices of corporate governance, and actively maintains the corporate record of all transactions, filings, reports and audits.

Why Legal Entity Management?

Properly implemented, an LEM framework accomplishes three objectives: ensuring compliance, managing risk and valuation of the internal legal department.

  1. Ensuring compliance: Legal entity management brings all corporate filings together, in addition to registrations of assumed business names and foreign authorizations, special licenses and permits, and documents for maintaining tax status. General counsel, corporate lawyers and paralegals should be able to access all of these for every national and subnational jurisdiction from a single repository.
  2. Risk management: The purpose of creating separate entities within a multinational organization in the first place is to isolate potential legal liabilities to discrete bodies. This is what’s called the “corporate veil.” Managing legal risk entails both keeping the veil intact and implementing the best practices to identify and mitigate liabilities.
  3. Valuation of legal teams: Legal departments of multinational enterprises almost invariably complain of being overworked and understaffed compared to what’s asked of them on a daily and ongoing basis. LEM strategy to share and analyze data helps legal departments to “do more with less.”

A Single Source of Data Truth

It goes by many names, but the data repository, or vault, comprises a single space created by software, increasingly often hosted on the Cloud, which contains the corporate data and documents that comprise operations for the many overlapping entities that make up a large organization. These data banks are sorted so as to be easily searchable, and use group permission functions to handle access and to track content creation and editing.

Keeping control of all of these data starts with the collection of all essential and relevant data from all the different entities comprising an organization in a single place. This is the central system of document management, often called a data repository, or vault. Depending on the needs of your organization, there are options that keep the data vault on your servers, as well as more flexible, Cloud-based solutions.

Robert Lakomski, a Business Consultant at Blueprint OneWorld outlined why the legal database is the major goal of an entity management framework, as well as the objectives it should accomplish in the following way:

Users should have confidence that the system accurately represents the information from all jurisdictions in which the organization operates. Processes should be in place to ensure those who are the source of the information are able to communicate it through the system. A user in a foreign country who is responsible for that country’s entities should have access to the system to update and make timely changes…

At a minimum, the system should track the effective dates of all transactions. The best practice is to track the events that comprise the transaction in addition to effective dates. Ideally, the system should know the date a company was incorporated, but also the original purpose for the entity and the dates when everyone approved its formation.

How Software Can Help

A reliable software platform is the essential basis for effective monitoring and response to legal responsibilities and risks. More and more companies are turning to outsourced software solutions in entity management, generally because they don’t want to spend time or money unnecessarily reinventing the wheel.

Software programs for legal entity management are developed systems for storage, cycles and notifications. They allow multiple parties to access the data they need while assigning permissions based on rank and responsibility. A customized platform that automates legal compliance reduces the risk of human error, helps legal and leadership teams work more effectively, and realizes higher savings and quality in the long run.

These and many other features are offered to customers of Blueprint OneWorld’s entity management platform. Please call or email us today so we can start putting it to work for your organization.