The Importance of Entity Management for Global Businesses
Jul 13, 2023
Global expansion is a significant milestone for any business, but it comes with a host of legal and compliance challenges that need to be addressed. One critical area that requires attention is subsidiary management, which involves forming, maintaining, and dissolving legal entities across different jurisdictions. The complexity of managing entities increases with each new subsidiary added to the organization, making it challenging and time-consuming.
To streamline this process, companies must adopt efficient entity management practices and leverage technology solutions that provide a centralized platform to manage all entities. In this article, we'll explore the challenges of managing subsidiaries for global businesses and the benefits of using entity management software to automate these processes.
The Stages of Global Entity Management
Entity management involves several stages, including formation, maintenance, and dissolution, each with unique challenges and requirements.
Forming a legal entity in a foreign jurisdiction can be a complicated process that involves various requirements, such as preparing necessary documentation, appointing directors, opening bank accounts, obtaining licenses and IP rights, and making all necessary filings. In some jurisdictions, the process can be even more complex due to specific circumstances, such as restrictions on foreign ownership of local businesses.
After forming an entity, the legal team has to put regular effort into maintaining it in good standing. This requires addressing multiple compliance aspects, including insurance, filings, and various other processes. The legal team needs to be aware of all applicable requirements and take necessary steps to ensure compliance.
When a business entity ends its lifecycle, the teams need to take all necessary steps to dissolve the company. This involves checking and correcting for any compliance issues, notifying all stakeholders, closing the bank account, and making necessary filings. In some jurisdictions, approval from the government is required before someone can dissolve a company.
Challenges in Global Entity Management
The entity management process can be complex and time-consuming, and global expansion only adds to the difficulties. Below are some of the challenges that global organizations face while managing global entities:
Lack of Visibility
When organizations scale their business, the lack of visibility may lead to multiple negative consequences. If crucial persons in a company don't have a comprehensive view of the whole organization, it can lead to delays, inefficient or wrong decisions, and lost deals.
Lack of Accessible and Accurate Entity Data
In the absence of a single source of truth about an organization, the teams lack accessible and accurate data for entity formation, maintenance, and dissolution, as well as for transactional and contract work. Many legal ops and internal counsel professionals are on a "scavenger hunt" for entity data, leading to delays, mistakes, and late or incorrect filings.
When teams operate across geographies and time zones, a single source of truth for corporate data becomes ever so critical. When subsidiary information lives in someone's inbox or desktop, the data becomes inaccessible, making interaction slow or even impossible.
Today, all organizations need to ensure the cybersecurity of their entities to combat cybercrime, prevent data loss, and comply with global privacy regulations, including GDPR and CCPA. When businesses share access to their entity data with their employees or third parties, they need finer control over how the users interact with data, leveraging access rights and permissions.
Benefits of Entity Management Software
Entity management software provides several benefits for global businesses, addressing the abovementioned challenges and streamlining subsidiary management tasks.
Entity management software provides a centralized platform to manage all entities, ensuring a single source of truth for all critical business data. With a centralized platform, the legal team can easily access entity data and collaborate with other teams across different geographies and time zones.
With entity management software, organizations can improve visibility, enabling key persons to view the whole organization and make informed decisions comprehensively. The org charting capabilities provide a birds-eye view of the whole organization, ownership connections, historical relationships between the entities, and multiple levels of detail.
Accessible and Accurate Entity Data
The software provides accessible and accurate data for entity formation, maintenance, and dissolution, as well as for transactional and contract work. This eliminates the need for legal ops and internal counsel professionals to go on a "scavenger hunt" for entity data, leading to faster and more accurate filings.
Entity management software enables efficient collaboration across the organization, including internal and external teams, through having a common platform for all global entities. This makes interaction fast and easy, enabling teams to collaborate seamlessly across different geographies.
Entity management software provides advanced cybersecurity features, such as access rights and permissions, to prevent data breaches and ensure compliance with global privacy regulations. With the software, businesses can ensure their data is secure and compliant.
Automating Entity Management
Automation is essential to entity management software, providing several benefits for global businesses.
Automation reduces the time and effort required for tasks, enabling legal teams to focus on higher-value work. This leads to improved efficiency, faster filings, and reduced costs.
Automation ensures that all entities comply with local regulations, reducing the risk of fines and penalties. With automation, legal teams can easily track compliance requirements and take necessary steps to ensure compliance.
Better Decision Making
Automation provides real-time data insights, enabling legal teams to make informed decisions quickly. With automation, legal teams can easily monitor entity data and identify trends, enabling them to take proactive measures to mitigate risks.
Choosing the Right Entity Management Software
Choosing the right subsidiary management software is crucial for global businesses, as it can significantly impact their management processes. When selecting entity management software, businesses should consider several factors, such as:
Businesses should choose a software that meets their evolving governance, compliance, and record-keeping needs. The software should provide the necessary features for entity formation, maintenance, and dissolution, as well as transactional and contract work.
Integration is essential, as businesses want software that will efficiently work with systems that they already have. The software should be flexible and easy to integrate with other business systems.
Security is crucial, and the software should provide advanced cybersecurity features, such as access rights and permissions, to prevent data breaches and ensure compliance with global privacy regulations.
Businesses should consider the cost savings of using subsidiary management software versus paper or more complex software solutions. The software should provide value for money and deliver a high ROI.
Efficient management of subsidiaries is critical for global businesses, as it ensures compliance, reduces risk, and enables strategic growth. By adopting entity management software and automation, businesses can streamline processes, improve efficiency, and ensure compliance with local regulations. When selecting software, businesses should consider functionality, integration, security, and cost to ensure they choose the right solution for their needs.
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What is entity management software?
Entity management software helps businesses track legal entities and compliance obligations like names, addresses, registration numbers, and ownership structures. With the software, companies can streamline subsidiary management processes, generate reports, and monitor compliance deadlines. It's useful for businesses with multiple subsidiaries or complex organizational structures, helping them stay organized, reduce risk, and improve governance.
What is entity management automation?
Entity management automation uses technology to simplify managing corporations, partnerships, and LLCs. It reduces time and resources while improving accuracy and compliance. It includes automating tasks such as filing reports, managing shareholder records, and maintaining regulatory compliance. This helps businesses stay organized and focused on growth.