Having a hard time keeping up with regulatory or governmental changes are some of the struggles for a global company’s legal department. However, keeping the legal entity management under strict control will help lead to international success.
Staying on top of a business’ legal entity structure has yet to be considered as a part of the daily routine for many corporations. However, global businesses are under more and more pressure to do so as there is a great need for simplifying compliance, reducing risk, improving transparency and finding new ways for cost-cuts.
The entity governance struggle for global companies
According to PwC, a strong global subsidiary governance framework is critical to avoid damage, both financial and reputational. Still, they say, it seems like many multinational companies are left to rely on patchwork of different service providers with an inconsistent approach to governance and compliance across countries.
For a global business, there is a continuously shifting regime of regulatory developments, local business customs and compliance requirements. This means that it is ever-important to always be vigilant when managing the global legal entity structures.
Since the OECD introduced the country-by-country financial reporting (CbC), plenty of countries has implemented 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 working hard 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 the different regulatory in different countries. Therefore, thinking with a global perspective is crucial. Having a corporate compliance program in system is key to detect and prevent eventual violations of law by all employees and directors of a globally operation company.
According to a report by Ernst & Young (EY), the best practice is to have fever 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 for reorganising and removing entities over time and proactively manage the 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 businesses reports under control. It can also benefit for a stronger corporate structure. Some of the benefits mentioned are:
- Undemanding structures
To have a simpler compliance structure offers a range of compliance and reporting advantages. With a good entity management structure comes benefits such as greater transparency, lower risk of local regulation breach and less scope for inconsistencies within group reporting.
- Simpler taxation policies
A proactive entity management can bring several tax advantages. such as generating additional tax value by releasing cash from inactive companies and release new value from existing tax assets by generating capital losses when dissolving entities.
- Extensive savings on subsidiaries
The benefits that comes with removing unwanted entities leaves fewer subsidiaries to report on, thus less information to gather. This in its turn would also mean simpler tax policies as described above, and lead to savings.
legal entity management software – a smart alternative
When all becomes hard to handle, there is assistance to be had. An entity legal management software application has the focus to support the legal and compliance teams. This type of software provides support through better overview of documentation, information availability, spend management, etc.
DiliTrust Governance is aimed to simplify the legal management of a business, making the daily processes more effective for compliance and legal teams. DiliTrust Governance manages all legal areas collectively, archives legal data and documents, monitors activities and shares legal documents and collaborates online.
Boards of directors, senior management and corporate secretaries can, of course, also benefit from the software, but there is other, more targeted, applications for these purposes. To learn more about how DiliTrust can help all parts of business teams, visit the page for our solutions.
Continue to learn more! Our article “Corporate Lawyers – are they the new rulers?” can get you up to speed on why in-house counsels matter for business strategy.