Modern business is an increasingly complex arena. As commercial organizations expand more easily into international trade and multi-territory operation, so the legal implications also grow. As a consequence, the ‘corporate veil’ is often built to enhance the structure of the company in question. This is a system that utilizes company law to separate the entity of an organization from that of its stakeholders, thereby instituting protection from personal liabilities.
To achieve this type of protection, the ‘corporate veil’ involves the creation of Legal Entity – that is, structuring a company or organization in such a way that it takes on legal rights and responsibilities itself, including the right to create and enter into contracts, and the responsibility to pay debts. The liability for contractual obligation and bill payment therefore technically lies with the company, not the people with whom it is associated. This means that the Legal Entity of a business can be complicated, particularly as growth and expansion leads to the potential for that business becoming a large multi-national corporation. Legal Entity Management is therefore essential for the ongoing success of any commercial operation – particularly in terms of scalability.
The three principles of Legal Entity Management
When it comes to Legal Entity Management, it is essential for businesses to implement a strategy that covers all aspects of Legal Entity processes. To that end, there are three core principles that should be followed for best practice performance.
- Compliance levels
Clarity of legal status of a business is vital for regulatory compliance, as well as compliance with internal standards. This becomes more complex for organizations trading in multiple jurisdictions and territories, therefore, as these requirements may differ according to location. Legal Entity data that must be tracked and managed in terms of compliance includes:
- Registrations of business names, including subsidiaries
- Registrations of foreign authorizations
- Tax status documents and filings
- Permits and licenses
In order to manage all of these types of data effectively, documentation needs to be centralized. By storing it all in a single, unified repository, it becomes accessible to all authorized personnel that need it – including corporate lawyers and the Legal Department. Centralization of this data also streamlines the process of surfacing issues, relationships and potential workflow bottlenecks, which allows businesses to take a proactive approach to Legal Entity Management.
- Risk reduction
The creation of Legal Entities is a risk management process in and of itself because it results in the ‘corporate veil’ that isolates different liabilities into different areas or business interests. This includes isolating stakeholders from personal liability, as well as isolating main businesses from subsidiary interests. Using this strategy, any risk to one area will have less impact on another, thereby supporting business continuity in the event of a risk incident or issue. A secondary advantage of risk reduction as a principle of Legal Entity Management is that it enables issues of corporate risk to be surfaced and identified at the earliest stages. This means that the business can then take a proactive approach to mitigate those risks even further.
- Streamlining the operation of the Legal team
The Legal Department of any corporation is burdened with a constant stream of requests and demands from the rest of the business, for services, advice and expertise. The function of the Legal Department is integral to the success of both Sales and Procurement teams, as well as being intricately involved with the Finance section. At the same time, the team is central to Legal Entity Management strategies, so it is essential that such strategies increase efficiency and contribute to the overall streamlining of the Legal Department workload. This principle specifically increases the value generated by the Legal team as it performs Legal Entity Management processes.
Of course, as with all management processes in business, the emphasis is on the reduction of risk. Outside of overt risk mitigation efforts, the work to ensure compliance with internal and external regulation and the work to increase efficiency within the Legal Department are all geared toward reducing the potential for conflict, dispute or delay. This is the essential function of Legal Entity Management, and it is what makes it so important to the continued success of the business.
Form and function
The task of Legal Entity Management is made bigger the more expansive and detailed the corporate structure of a business grows to be. If the form of the corporate veil includes multiple subsidiaries, for example, then multiple Legal Entities are likely to be in play. Each of these will serve to insulate individual parts of the business, with clear delineation between potential liabilities and the possibility of disruption. Each is likely to have different arrangements for corporate management, stakeholder voting rights and share distribution.
Even with this type of structuring, however, the corporate veil is only as effective as the strategies used to manage it. It is possible to have properly established Legal Entities for multiple subsidiaries, and for those Legal Entities to fail in their function due to mismanagement or a lack of oversight. For real efficacy that provides quantifiable benefits, it is essential for form and function to work in tandem. It is vital to track and monitor data and processes relating to each Legal Entity, as well as the full data set as a whole.
The challenge lies in the nature of the business expansion. Rarely do companies grow to multi-national status in an entirely deliberate and predictable way, with each Legal Entity created by the original corporation. Most often, this type of subsidiary structure results organically, from a certain level of acquisition over an extended period of time – in which case, the task involves getting to grips with Legal Entities that are initially unfamiliar. This challenge is only amplified by the issue of data compliance across different territories – that is, compliance within each territory, as well as compliance regarding data transfer between jurisdictions.
When Legal Entity form and function are managed well and work in tandem, the benefits to the business are not confined to effective risk management – though that is essential. There are several additional advantages that result from proper Legal Entity Management.
- Scalability – Any streamlining effort contributes to scalability where business is concerned, but such increases in efficiency within Legal Entity Management processes play a significant role in laying the strong foundation that helps ensure scalability in the long-term. This type of streamlining first requires an accurate assessment of all Legal Entities and their roles within the overall corporate structure. This then allows for the elimination of Legal Entities that are no longer necessary or functional, or those that are redundant. The removal of this non-productive corporate debris provides the space and resources for focus on the functional Legal Entities that have retained value and contribute to the overall profitability of the organization. Most importantly, it ensures that businesses have the capacity to meet increased demand as soon as the opportunity arises.
- Cost reduction – When any administrative system is made more efficient, costs are reduced because less resources are needed to find, collate and process required data. In addition, the risk mitigation that accompanies increased efficiency results in reduced financial penalties that would otherwise be incurred through delays and incidents of information being misplaced, misfiled, or simply overlooked.
- Increased visibility and accuracy – The implementation of a streamlined, comprehensive Legal Entity Management system ensures that data is visible and analysis is accurate. This allows for fully informed decision-making, which is vital when reporting to stakeholders across any range of subsidiaries. Visibility of data is also advantageous to a number of business areas, including the Legal and Finance Departments while dealing with tax liabilities.
The sharing of information is essential for all businesses but is especially important for those organizations with complex corporate structures involving multiple Legal Entities. A streamlined system that supports scalability while also providing increased visibility and accuracy of data enables information to be shared easily and quickly, because the process of surfacing the required data is more efficient. Not only does this improve communication with stakeholders, it also improves efficiency in workflows by ensuring that personnel tasked with Legal Entity Management stay ahead of milestones and deadlines.
The function of Legal Entity Management software
The complexities of Legal Entity Management are resolved with the use of specific software platforms, such as that developed by Symfact. By utilizing a browser-based design, the software provides all the tools necessary for secure visibility of Legal Entity information while also enabling granular-level data analysis. This means that the features of Legal Entity Management software address issues of compliance as well as ensuring all decision-making is based in accurate data.
Centralization – When all documents and data pertaining to Legal Entity Management are centralized in one digital storage location, administrative processes are immediately streamlined. The simple step of removing the need to identify specific data required, search for and retrieve it means that personnel can complete Legal Entity Management tasks quickly and efficiently. This makes corporate governance and housekeeping simple and straightforward, with all information kept secure, but readily accessible, including:
- Organizational structures
- Operational accounts
- Voting and signature rights
- Subsidiary governance and finance
- Share value, volume, and transfers
- Stakeholder documentation
While centralization can raise concerns about the potential for cybercrime, the platform design of Symfact’s Legal Entity Management software keeps data secure through access control. Authorized personnel can access the data they need from any web-enabled device in any location with an internet connection, but the authorization process means that all user activity is logged and therefore traceable.
- Automation – Businesses that utilize a high degree of automation within basic administrative processes achieve increased efficiency, which is advantageous across all areas of the operation. In relation to Legal Entity Management, automation provides enhanced transparency and accountability with workflow management tools that ensure the right task is delivered to the right person at the right time. Audit trails are generated and milestone events can be easily tracked and monitored. This serves to further reduce risk, by decreasing the reliance on human input. Automation is further applied through powerful search tools, which can be used to deliver actionable data and targeted business insights for informed decision-making.
- Security – While the permission-based authorization process of Symfact’s Legal Entity Management software keeps business information secure, this data safety feature is further supported by the use of the latest, cutting-edge encryption technology. This is of particular importance for those organizations that function as multi-national corporations across multiple territories, helping to ensure compliance with different data security regulations.
- Flexible Configuration – When it comes to Legal Entity Management, there is no ‘one-size-fits-all’ solution. Every organization is structured in a unique way, and for different purposes, so it is essential for any software package deployed for this purpose to be fully customizable. Symfact’s Legal Entity Management software can be implemented as a wholly bespoke platform, with scope for configuration to match the exact requirements of the business in question. This includes customized workflows, customized reporting and data analysis, and a customizable access control interface. As opposed to an ‘off-the-shelf’ package, the Symfact platform is designed to be moulded to the specification of corporate structure, and to be seamlessly integrated with existing systems. This level of customization delivers the flexibility required to ensure full scalability, which is the key to securing the future success of the business.
Where efficiency and risk mitigation connect
Legal Entity Management software is the place where efficiency and risk mitigation efforts connect. These two areas of business management are already closely related, but when combined and deployed they deliver a powerful digital solution. This solution allows businesses to maintain strict control of Legal Entities while providing scope for future growth that is stable and well managed. Most importantly, it is a digital solution that is easy to customize and simple to implement, while creating an excellent user experience. Contact Symfact today to learn more about how Legal Entity Management software can streamline your corporate governance and help you take control of your expanding organizational structure.