What is Entity Management?

Sep 19, 2022

Entity Management: What Is It and Why Do You Need It

Whether an early-stage startup or an established firm, the primary goal for any organization is how quickly and efficiently they expand. With gradual growth, organizations tend to add more entities, which means the legal teams are put to work with numerous operations and an unimaginable amount of data to manage.

Do you know that an Entity Management platform can help you streamline all of this in one place? But before we dive deeper, let's explore more about an entity.

What is Entity Management?

Entity management refers to the process organizations use to effectively manage critical business information and compliance documents. In today's digital age, where businesses are expanding online, subsidiary management has become increasingly important. Organizations can reduce costs, enhance efficiency, and accelerate their growth by implementing streamlined entity management software. This system enables businesses to track compliance, file annual returns, organize shareholders' information, draft documents, and manage reports effectively.

Moreover, it ensures compliance with international, federal, state, and local requirements, simplifies data and document management, provides easy access to records, and ensures the security of documents. Entity data typically includes registration records, officer and director lists, and ownership records. Many companies are adopting outsourced entity management systems to maintain a practical approach. The software replaces manual methods and offers numerous benefits, including improved legal operations, enhanced teamwork and collaboration, simplified risk and compliance management, and a single source of truth. In a rapidly changing business environment, legal entity management is crucial in ensuring organizations' compliance, efficiency, and security.

Five Types of Legal Entities

An entity known as a subsidiary can be a corporation, partnership, trust, etc., possessing distinguishable legal rights. An entity is created to conduct business activities or engage in trade. There are five types of entities that an organization can form:

  1. Sole proprietorships: A sole proprietorship is the simplest and most popular form of business structure, where only one person is involved. The sole owner is the business operator and takes on all financial responsibility and legal liability for the company.

  2. Partnership: There are two types, general partnership, and limited partnership. A general partnership is similar to a sole proprietorship with two or more owners. On the other hand, a limited partnership is a registered business entity where founders have personal liabilities and limited partners, for example, investors, have little to no liability or control over the business.

  3. C Corporation: These are legal entities independent of the founders. Here, the business is liable for legal action, while the founders and owners are legally separate from the organization. C-corps face double taxation, and they have to comply with many more regulations and tax laws.

  4. S Corporation: It is a special designation for small businesses with 'Inc.' in their names. Unlike C-corps, S-corps don't have to undergo double taxation. S-corps can have only 100 shareholders, which limits the entity's growth.

  5. Limited Liability Company: These are separate legal entities from their owners and have the liberty to choose how they are taxed. LLCs take positive features from other types of entities and resonate more with sole proprietorship and partnership.

Now that we know what an entity is, let's understand how entity management works.

How Does Entity Management Work?

It is a complex process involving many people and procedures related to each entity. Orderly management of a company's vital information and documents is necessary to keep the business streamlined. It consists of a corporation's management, compliance, and legal departments that maintain incoming and outgoing information and processes like regulatory compliance, administrative maintenance, monitoring of insider trading, and internal record-keeping.

Apart from keeping track of all the activities, entity management helps a business understand the deficiencies to comply with the governance model and overcome contemporary challenges.

But how do organizations worldwide manage multiple corporate legal entities and large amounts of data? They rely on digital platforms. Legal entity management supported by the right technology has helped businesses manage their data efficiently and save time by eliminating repetitive tasks and minimizing errors in reporting. Automating redundant tasks gives an organization ample time to focus on strategic goals.

Who takes care of entity management?

Legal entity management is a comprehensive process involving overseeing a corporation's legal, financial, and administrative functions to ensure compliance with applicable laws and regulations. This process includes managing the organization's governance structure, maintaining compliance with tax laws, and ensuring that legal requirements are met.

The legal entity management team typically includes the general counsel, corporate secretary, paralegals, and members of the tax department who work together to achieve the organization's goals. They are responsible for managing the legal entities that make up the corporation, ensuring that they are properly structured and maintained and that all legal and regulatory requirements are met.

The corporate secretary manages the organization's governance structure and maintains records of the company's directors, officers, and shareholders. The legal department, led by the general counsel, provides legal advice and guidance to the organization on various legal matters, including contracts, regulatory compliance, intellectual property, and litigation.

The tax department ensures the organization complies with all applicable tax laws and regulations. They oversee the preparation and filing of tax returns, manage tax audits, and provide guidance on tax planning and strategy.

The departments responsible for entity management carry out various duties, such as ensuring regulatory compliance, performing administrative maintenance, and monitoring internal record-keeping. These departments handle the flow of information, reports, and documents required for the corporation's transactions and filings. Apart from these significant internal corporate departments, other employees such as managers, board directors, audit committees, and regulators frequently request corporate data throughout the business week.

Why is entity management critical?

Managing your company's legal entities is critically important because it is at the core of ensuring compliance with local, state, and national laws. Understanding how corporate entity management can help maintain compliance with rules and regulations is essential.

  • By prioritizing strong entity management at the core of its subsidiary management approach, an organization can confidently expand its operations regionally or globally while simplifying its compliance with regulations.

  • You can significantly minimize risk for your legal subsidiaries, resulting in substantial time and cost savings for your organization. It will provide a more streamlined governance process for financial, legal, environmental, reputational, and safety matters, giving you the confidence to focus on other critical areas of your business.

  • Regardless of the data types handled by different departments, a single source of truth is essential for any organization. By reimagining entity management, it's possible to provide legal, HR, tax, and finance teams with the correct data at the right time, enabling them to address risks more quickly and make informed decisions. This approach fosters team collaboration and ultimately leads to better outcomes for the entire organization.

  • Data is a valuable asset, but it can be overwhelming to manage it effectively. With the right resources, data can quickly become updated and useful. The solution to this problem is entity management, which empowers your teams to turn data into insights. With these insights, your organization's senior leadership and board can make more informed decisions. This ultimately puts your teams in a more strategic position and enables your organization to take advantage of data's benefits.

Benefits of Entity Management

It can provide numerous benefits for organizations. Some of the most significant advantages include the following:

  1. Compliance and Risk Management: Effective legal entity management can ensure compliance with legal and regulatory requirements, reducing the risk of penalties, fines, or legal disputes. By maintaining accurate records of corporate legal entities, meeting filing deadlines, and adhering to governance procedures, organizations can demonstrate their commitment to compliance and mitigate potential risks.

  2. Organizational Efficiency: Properly managing legal entities can streamline administrative processes and reduce the paperwork burden. Centralized management of entity-related information and documents enables quick access, retrieval, and sharing of critical data, improving overall operational efficiency.

  3. Improved Governance and Decision-making: Clear governance structures and well-defined roles and responsibilities can facilitate effective organizational decision-making. Subsidiary management provides a framework for documenting and enforcing governance procedures, ensuring transparency, accountability, and efficient decision-making processes.

  4. Investor and Stakeholder Confidence: Well-managed entities inspire confidence among investors, shareholders, and other stakeholders. Organizations can enhance trust and attract investment opportunities by maintaining accurate ownership records, managing shareholder communications, and ensuring compliance.

  5. Corporate Structure Optimization: Entity management allows organizations to manage their corporate structure strategically. It provides a clear overview of the entity's ownership, subsidiaries, and affiliated entities, enabling businesses to evaluate and optimize their structure to achieve operational and tax efficiency, facilitate expansion, or support business reorganization.

  6. Time and Cost Savings: Efficient management of subsidiaries can reduce the time and effort required for administrative tasks such as filing reports, preparing documentation, and responding to compliance requests. Organizations can save time and allocate resources more effectively by automating processes and maintaining organized records.

  7. Business Continuity: Proper entity management can ensure the continuity of business operations. By keeping track of important legal documents, contracts, and agreements, organizations can easily navigate changes in ownership, key personnel, or other significant events, minimizing disruptions and facilitating smooth transitions.

  8. Centralized Information and Collaboration: Entity management software provides centralized repositories for storing and managing entity-related information. This fosters collaboration and enables authorized stakeholders to access relevant information, documents, and reports, promoting efficient communication and decision-making.

  9. Scalability and Growth: Well-managed entities are better positioned for scalability and growth. With proper entity management practices, organizations can adapt to changing business needs, expand into new markets, and facilitate mergers and acquisitions more smoothly.

The Challenges

Managing entities can be tricky, as several challenges come with it. One of the main challenges is ensuring that all entities are appropriately identified and categorized. This requires a lot of attention to detail and can be time-consuming. Additionally, keeping track of entity changes, such as mergers or acquisitions, can be challenging. Ensuring that all relevant stakeholders are informed of changes is crucial to efficiently manage entities. Another challenge is ensuring compliance with regulations and laws, as entities may operate in different countries with varying regulations. Finally, ensuring that all information related to entities is accurate and up-to-date is crucial for effective entity management.

Standardize Entity Management

Entity Management is needed at all stages of your business. As your organization expands and includes more entities, your legal team becomes overwhelmed with additional work. This can decrease their efficiency and result in delays and errors. To help you with entity compliance and governance, Traact brings all foreign & domestic entities into a single table, allowing your legal team to become more productive by automating most of their jobs. The platform files and creates entities on your behalf; it lets you register agents in all 52 jurisdictions; BOC-3, apostille, annual filing, and initial filings are just a few clicks away.

Not only this, Traact lets you surf through entity history, take a glance at the organization chart, check for officers, find documents, and a lot of details. In addition, it is a central place for all your data stored securely on the cloud. Finally, it enables collaboration and legal data consistency between executives, lawyers, accountants, board members, outsourced firms, and investors.

Here's how we can streamline your corporate legal operations beyond entity management.

Are you intrigued to know more? Book a free demo with us right away!

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