Modern business is an increasingly complex arena. As commercial organizations expand more easily into international trade and multi-territory operation, so do their legal implications. 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 a Legal Entity – that structures a company or organization in such a way that it takes on legal rights and responsibilities on itself, including the right to create and enter into contracts, and the responsibility to pay debts.
As a business ultimately grows and expands in to a large multi-national corporation so does the complexity of its Legal Entity. At this point Legal Entity Management becomes key for the ongoing success of the entire 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.
Clarity of legal status of a business is vital for regulatory compliance, as well as compliance with internal standards. This becomes even more complex for organizations trading in multiple jurisdictions and territories. 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.
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.
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.
Of course, as with all management processes in business, the emphasis is on risk reduction. 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.
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. This challenge is only amplified by the issue of data compliance across different territories.
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.
- 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.
- Increased visibility and accuracy – The implementation of a streamlined, comprehensive Legal Entity Management system ensures that data is visible and analysis is accurate.
The function of legal entity management software
The complexities of Legal Entity Management are resolved with the use of specific software platforms. By utilizing a browser-based design, the software provides all the tools necessary for secure visibility of Legal Entity information while also enabling:
Centralization – All documents and data pertaining to Legal Entity Management are centralized in one digital storage location, allowing administrative processes to be immediately streamlined.
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
Automation – Enhanced transparency and accountability with workflow management tools, ensure the right task is delivered to the right person at the right time.
Security – While the permission-based authorization process of 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.
Flexible Configuration – 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. 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.