The modern organization, especially the modern international organization, can become a tangle of legal structures. Whether an entity enters the fold as a result of taking aim at a new jurisdiction, creating a new product or service, spinning out a division, or even when they’re inherited through mergers and acquisitions, every single entity takes its place on the map that is the organization and its constituent parts.
It can be very easy to lose track of all those entities, though. Without clear thought, planning and strategy, all of those individual entities in legal structures are just mindlessly wandering the world, unable to see what they’re about to bump into or whether they are in fact still moving. They could be dormant, they could be inefficient, they could be missing essential information – no one will ever know, unless they take the time to map out their legal structure.
Why would you want to map legal structures?
Creating a map of legal structures helps to visualize the data inherent to the organization. These maps attempt to collect the information on your organization’s servers, gathering entity data from across the legal structure, in order to tell a story about the current state of the business. It’s simple without being oversimplified, providing a coherent glimpse into the thousands of low-level transactions and documents that make up the entities in your legal structure.
Mapping out legal structures can help you to do the following:
- Highlight risks: Creating a map of legal structures can highlight where you may have chosen the wrong entity type for the need, where you may have an unnecessarily complicated group structure, or where you may be in non-compliance with local regulation on substance or directorships. The legal structure map can help to mitigate risk by shining a light on the issue.
- Understand ownership: Global regulators are coming down hard on organizations, and are demanding to understand the ultimate beneficial owner of entities and businesses around the world. Creating a map of legal structures can pull data from your entity management system and bring ownership information to the fore. See who’s on which board, how the entities interplay, and identify whether any personnel changes need to be made to remain in compliance with the local jurisdiction’s regulations.
- Monitor compliance: When a map of the legal structures is based on real-time entity data, it can also help to flag potential compliance issues. It can be easy to miss a filing in a far-flung location if your entity management team is small and centralized; creating a map with looming filing deadlines and the general state of compliance can help to prioritize and focus entity management work.
- Undertake restructuring: Sometimes after M&A activity or a period of fast growth, it’s worth taking a step back to check that the legal structure is still fit for the organization’s purpose. Mapping out legal structures here can help to identify potential entity rationalization programs, or to show where there may be gaps in the structure.
Using entity diagramming to support business strategy
This process of creating a map of legal structures is often referred to as entity diagramming, organizational diagramming or entity relationship diagramming. It’s driven by modern governance technology such as entity management systems, which enables the map to be built on real-time, up-to-date entity data. This data – and, ultimately, the state of compliance at any point in the legal structure – can easily be highlighted by running an entity diagram report and visualizing the data held within the system.
Of course, all of this and more helps to feed into the organization’s strategy for the future. A map of legal structures can shine a light on potential new markets, new ventures or new partnerships. Even if restructuring and entity rationalization is the order of the day, that’s still a process of getting the legal structure ready for future growth.
Stakeholders can use entity diagrams and maps of legal structures to make all manner of business decisions. Examples of organizational charts for business include economic-based ownership or geographic ownership of legal structures, which can show where a structure is leaning too far into a certain region or relying too much on an entity for revenue.
But it shouldn’t just be about the types of entity diagrams – the best maps of legal structures are based on a consistent approach to things like colors, shapes and the style of line and how they denote ownership. Using technology to create these maps of legal structures can help to keep things uniform in both style and approach, and ensure that, no matter who views the visualization, they are told the same story as anyone else.
How entity management software helps to map out legal structures
This approach to mapping out legal structures – the process of creating entity diagrams or organizational charts – is key to modern governance, as it helps to accommodate regulatory needs while also protecting the business. It’s a way to maintain flexibility while adhering to the increasing burden of global compliance needs, and gaining the oversight necessary to think strategically and be proactive.
You could create these charts by hand, of course, but that can lead to manual errors and oversights – and, consequently, to business decisions made based on erroneous or corrupt entity data. When you harness the power of entity management software for your governance and compliance, though, you can create entity diagrams simply and efficiently by utilizing the data already held in your corporate record.
Entity management systems, such as Diligent Entities, is built to deliver the right information to the right people at the right time. By creating and storing entity data, such as contracts, licenses and director information, in an entity management system, you can then create organizational charts to map out legal structures at the click of a button. Diligent Entities helps you to create robust, up-to-date entity diagrams that can be impactful for all stakeholders, enabling smarter decision-making.
Diligent Entities also integrates seamlessly with Diligent Boards and a secure file-sharing platform to create the Governance Cloud, an all-in-one compliance and governance ecosystem that helps to ensure any map of legal structures is created from a complete set of real-time data. Get in touch and schedule a demo to see how Diligent’s software can help you to map out legal structures and be smarter about strategy.