Keeping up with regulatory or governmental changes is challenging for busy Legal Departments. However, keeping a tighter rein on legal entity management will encourage more growth and exponential gains in the future.
Staying on top of a business’ legal entity structure is not yet considered a pivotal part of the daily routine for many corporations. However, global businesses are under more and more pressure to do so as there is an increasing need for simplifying compliance, reducing risk, improving transparency and cutting costs.
The entity governance struggle for global companies
According to PwC, a strong global subsidiary governance framework is imperative to avoid both financial and reputational damage. However, it is still apparant that many multinational companies are left to rely on a patchwork of different service providers who provide an inconsistent approach to governance and compliance worldwide.
For global businesses, there is a continuously shifting regime of regulatory developments, local business customs and compliance requirements. This means that it is crucial to always be vigilant when managing global legal entity structures.
Since the OECD introduced country-by-country financial reporting (CbC), many countries have implemented their own variations on this legislation, leaving businesses to comply. This type of reporting requires information for every entity, and branch, in every country of operation; leaving the Legal Departments of corporations scurrying to comply.
Think global, act local
In law, a legal entity is an object that can bear legal rights and obligations. These entities can be damaging if businesses do not stay on top of different regulatory obligations in different countries. Therefore, thinking with a global perspective is crucial. Having a corporate compliance program is key to detect and prevent eventual legal violations made by any skakeholders in a global company.
According to a report by Ernst & Young (EY), best practice involves having fewer legal entities. This allows for streamlined compliance and reporting while also reducing risk and cost. However, rationalising entities can be a major undertaking. Therefore, it is vital to set up a project while reorganising and removing entities over time in order to proactively manage this structure on a continual basis.
The benefits of legal entity management
In the same report published by Ernst & Young (EY), it is also suggested that strict legal entity management can keep global business reports under control. It can also encourage stronger corporate structures. Some of the benefits outlined in this report detail:
- Undemanding Structures
Having a simpler compliance structure offers a range of compliance and report advantages. A good entity management structure includes benefits such as greater transparency, lower risk of local regulation breaches and less scope for inconsistencies within group reporting.
- Simpler Taxation Policies
Proactive entity management can bring several tax advantages. These involve generating additional tax value by releasing cash from inactive companies and releasing new value from existing tax assets by generating capital losses when dissolving entities.
- Extensive Savings on Subsidiaries
Removing unwanted entities leaves fewer subsidiaries to report on, thus less information to gather. This in its turn means simpler tax policies as described above, and lead to savings.
legal entity management software – a smart alternative
Entity legal management software supports legal and compliance teams with its smart technology. This type of software provides support through a complete overview of legal activities, performance KPI’s and budgetary control, to name some examples.
DiliTrust Governance is aimed at simplifying the legal management of a business, making daily processes more effective for compliance and legal teams. To find out more, contact our team to book a free demo.