How to Leverage Entity Management Software to Move Entities

Lauren Mcmenemy

While the uncertainty over Brexit continues to loom over businesses in the UK, there are some multinational organizations that are assuming the worst and moving their entities elsewhere in the European Union.

Those already making the move – or planning to – include:

In fact, a study released in March 2019 suggested at least £900 billion of assets have been moved out of the UK by financial firms ahead of Brexit. Dublin is the biggest beneficiary of those moving entities, covering 100 relocations, with Luxembourg taking 60, Paris taking 41 and Frankfurt now home to 40 relocated legal entities.

The moves have become so common that the UK government website houses guidance on changing your company registration in the event of a “no-deal Brexit” – the scenario in which no withdrawal agreement is reached and the UK leaves the EU with no trading agreement in place. It says you may need to change your company registration and consider moving entities if it’s:

  • A European entity formed under EU law.
  • A UK company with an EEA corporate officer.
  • A UK company involved in a cross-border merger.
  • An EEA company.

Why do organizations need to move entities?

Brexit, of course, is not the only reason organizations might consider moving entities, but it’s a perfect case study in the complex thinking and scenario planning that must be done by boards on a regular basis.

“One of the most obvious and compelling reasons to move is the desire to increase profits,” writes Carmen Raluca Stoian for The Conversation. “There can be huge tax breaks associated with being a legal entity registered in a tax haven. Ireland, Switzerland and Panama have all attracted this kind of investment.”

Stoian says another reason to relocate is to base the business in a major financial center, such as London, New York, Frankfurt or Hong Kong. This can bring better opportunities to raise capital and have access to highly specialized talent and shows a commitment to robust legal standards and business practices – something that can ultimately enhance both reputation and performance.

Acquisitions and mergers can also result in a need to move entities, such as what happened when Budweiser was bought by InBev and moved its operations to Belgium. The need to move an entity can be part of the legal entity rationalization process that evolves from M&A activity, or from just a consolidation strategy within a large subsidiary group.

Moving entities doesn’t have to be across international borders, either. It might be that a US-based startup is seeking some seed funding, but investors prefer their investments to be incorporated as a Delaware company; it could be as simple as the CEO moving across the country and it makes more business sense for the HQ to be on the East Coast than on the West Coast.

A complex process that requires up-to-date entity data

Moving or reincorporating an entity, or re-domiciliation, can be a tricky and complex process, one that must be handled carefully to ensure the legal entity and wider company retains all of its current benefits and grants – because, yes, sometimes moving entities can mean a company loses certain privileges, such as tax breaks or special status, and that might not come to light until long after the entity has been moved.

When planning to move an entity, you’re effectively closing down a subsidiary in one jurisdiction to reincorporate it in another, so there will no doubt be final reports and payments to be made to the old regulators. In keeping with the Brexit theme, when moving an entity from the UK, you’ll need to announce your closure to interested parties and to HM Revenue and Customs (HMRC), make sure your employees are treated according to the rules, and deal with your business assets and accounts. You’ll need to tell HMRC that your company has stopped employing people to close off the PAYE and National Insurance accounts and send the final statutory accounts and a company tax return to HMRC too.

Of course, before the entity has been closed down appropriately in the initial jurisdiction, you must set up a new entity in the new jurisdiction so that you can transfer any assets and start the process of being ready to operate, and that means ensuring you follow the right steps to incorporate in the new jurisdiction. One wrong step could spell disaster for the entity move, so it’s best to seek advice from an expert in global entity management if you don’t have the expertise in-house.

Leveraging entity management software to move an entity

Before moving entities, legal operations and compliance teams must make sure all entity data is up to date and the corporate record is transparent and available to all involved in the move. If the organization uses entity management software to streamline governance and compliance, this process becomes much easier – entity management software can create a single source of truth for the corporate record, meaning those responsible for legal entity management can access real-time entity data to enable better decision-making.

Entity management software, such as Diligent Entities, can also help to visualize the entire group subsidiary structure in order to pinpoint the right jurisdictions to which you can move an entity. Organizational diagrams and mapping out legal structures help an organization to highlight risks, understand ownership, monitor compliance and undertake restructuring exercises. Entity charts can include economic-based or geographic ownership of legal structures, which can show where a structure is leaning too far into a region or relying too much on a specific entity for revenue. The board can then use this organizational chart and the real-time entity data to move entities.

Leveraging entity management software to move entities helps to integrate data from multiple business units, such as legal, tax, finance, treasury and compliance, into a single system of record, bringing the right information to the right people at the right time to make critical business decisions. Get in touch and request a demo to see how Diligent Entities and the wider Governance Cloud can help you to move entities and make the most of growth opportunities.

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Lauren McMenemy

Experienced journalist Lauren McMenemy has been writing about compliance and governance for several years, and has covered finance, professional services, healthcare, technology, energy and entertainment.