Entity management is the science and art of integrating various duties, including administration, governance, legal compliance and planning, across all of the various subsidiaries that compose a modern multinational enterprise. We've talked in this space before about the unique contributions that the C-suite, senior management, and the Board of Directors, governance and compliance departments can make to the functioning of the well-oiled machine that is transnational entity management.
The general counsel of a company has a central role in entity management as well. In this post, we'll take on some of the necessary, but often overlooked, tasks of legal entity management the general counsel is tasked with, and how those wheels can be greased through the application of effective technological solutions.
The general counsel's role in legal entity management
People began to talk about legal entity management (LEM) as a specific subset of entity management science back in 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 get a handle on actions that were deemed profit-shifting to avoid taxation, which contributed to the erosion of the individual OECD countries' economic base.
Legal entity management is a strategy for handling 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 U.S., Europe and worldwide enacted since the financial crisis of 2008 imposed new record-keeping and reporting requirements, among other factors that greatly increased the 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 have to field dozens of requests in a single day about the details of ownership for international entities when leadership is planning a reconstruction or expansion. Legal entity management keeps all of this 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, giving the leadership advice on the best practices of corporate governance, and actively maintaining the corporate record of all transactions, filings, reports and audits.
Aspects of a strong legal entity management strategyThree essential prongs of a sound strategy for LEM are ensuring compliance, risk management and the valuation of the legal team.
- 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 from a single repository for every national and subnational jurisdiction.
- 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 knowing the best practices to identify and mitigate liabilities.
- 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 strategies to share and analyze data help legal departments to "do more with less."
General counsel & legal entity management
The general counsel must have command over many different intricate details in the process of LEM. This starts with the common data of each entity, such as the legal name, form of organization, address the jurisdiction it operates within, and contact information for registered agents. They should also have instant access to important documents such as filings and statements and lists of owners and investors as well as officers and directors.
It's the task of the general counsel to keep track of the exponential growth in documents and records that include incorporations and dissolutions, meeting minutes of the Board and senior management, key agreements having to do with other companies, intellectual property and the like, business permits and licenses, and ownership and organizational charts.
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.
An effective software platform allows a bird's-eye view of the most important data and documents for a given entity — the entity record — and gives access to the more detailed data and documentation required for things like regulatory filings. It can sort documents by type, jurisdiction and date, and send automatic notifications that help your legal department keep on top of its many different responsibilities. By managing data from a central repository, whether on your own servers or in cloud storage, it keeps your data secure and accessible by authorized people.
Sophisticated platforms for entity management, moreover, can do a lot of the work through automatic processes that general counsel and paralegals were previously spending thousands of hours doing manually. They can create reports and filings to be delivered to senior management and regulators at the touch of a button. They can also use the data stored in the general repository for effective presentation of ownership, organization and similar tasks that take advantage of the primarily visual, rather than text-based ways, we absorb and retain information.
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.