If your organization moves to centralized corporate governance, how can you be confident about keeping all your entities around the world in good standing with the relevant authorities? Vasil Blaze, Global Entity Manager, Corporate Secretarial Services, from Diligent partner Law Debenture, shares some essential pointers.
As your organization grows and enters new territories, whether organically or through acquisition, you will encounter additional challenges in an already complex regulatory environment. How can you make sure all your entities are compliant when you’re suddenly operating in unfamiliar jurisdictions? And what can happen if you don’t?
The consequences of falling out of good standing
The penalties for simple mistakes like late payment of taxes or failure to apply for a license can be high, and directors can be held personally liable for the debts incurred.
In some jurisdictions, including most European countries, delayed filing of an annual report can automatically push a company into administrative dissolution, unless they resolve the issue within the timeframe allowed. Whilst the dissolution may be reversible in some countries providing the relevant measures are put in case, nevertheless, the negative impacts are serious, notwithstanding the financial cost and effort of restoration. It can cause an entity to lose its power and authority as well as key legal rights, even the right to continue trading under its name. If the parent company is based in another country, it can lose the right to do business there, putting the directors in a dangerous position of personal liability.
Essential tips for staying in good standing around the world
By centralizing not just your corporate records but also the management of your obligations for all your entities across the jurisdictions you operate in, you will gain organization-wide visibility. This will empower you to manage your compliance accurately and proactively.
Here are a few steps you can take to ensure your global subsidiaries remain in good standing:
Working together efficiently
Ensuring you have the right people, processes and technology in place. Getting them working in harmony sets centralized entity management up for success.
It will enable directors to make corporate-wide decisions or prepare to enter new jurisdictions with confidence. The system will be easy to scale up as the organization grows, and even down if you decide to dissolve entities or withdraw from certain regions.
Take a proactive and structured approach
Where some organizations go wrong is their reliance on unclear or unspoken practices. Not having access to the right information at the right time catalyzes this and inefficient processes lead to poor data, inconsistent reporting and inaccurate or late filings.
Adopting a consistent set of policies and procedures across the organization, making sure they’re adhered to and putting central access, management and reporting in place will ensure your compliance runs like clockwork.
Track and monitor local requirements centrally
Automated workflows will enable both local compliance teams and HQ to keep on top of the entity data on record and streamline the process of approving any changes.
A dashboard will give the central controller visibility of where all the organization’s entities sit and their compliance status. Compliance calendar reminders will make it impossible to inadvertently miss filings deadlines.
Treat entity management like a team sport
In a global organization, while it makes sense for a central controller to take overall responsibility, it’s still wise to rely on regional controllers to keep tabs on local changes and pass on the details. For example, a controller in France will update the central owner in the US of any address changes for directors, officers or entities in France.
Ensuring existing regional controllers have assigned responsibilities, so they are still accountable and feel involved, will be a key factor in gaining buy-in when moving to a centralized governance approach.
Be agile with your resources
Your team doesn’t have to be made up exclusively of employees. Bringing in third party expertise is an efficient way to access necessary local knowledge and experience, increasing agility.
Most governance teams at multinational organizations will lean on third party providers for local coverage in certain areas, especially when testing the waters in a new territory. This will allow you to move faster while bringing the benefits of cultural sensitivity and awareness of specific local practices and requirements.
Keeping a grip on your global compliance
As your business grows and expands its international reach, keeping tight control of your governance becomes ever more crucial.
Applying a mix of efficient centralized management with localized support will give you the visibility and knowledge you need to stay in good standing across the jurisdictions you operate in.