The modern organization, especially the modern international organization, can become a tangle of legal structures. Whether an entity enters the fold as a result of taking aim at a new jurisdiction, creating a new product or service, spinning out a division, or even when they're inherited through mergers and acquisitions, every single entity takes its place on the map that is the organization and its constituent parts. It can be very easy to lose track of all those entities, though. Without clear thought, planning and strategy, all of those individual entities in legal structures are just mindlessly wandering the world, unable to see what they're about to bump into or whether they are in fact still moving. They could be dormant, they could be inefficient, they could be missing essential information ' no one will ever know, unless they take the time to map out their legal structure.
Why would you want to map legal structures?Creating a map of legal structures helps to visualize the data inherent to the organization. These maps attempt to collect the information on your organization's servers, gathering entity data from across the legal structure, in order to tell a story about the current state of the business. It's simple without being oversimplified, providing a coherent glimpse into the thousands of low-level transactions and documents that make up the entities in your legal structure. Mapping out legal structures can help you to do the following:
- Highlight risks: Creating a map of legal structures can highlight where you may have chosen the wrong entity type for the need, where you may have an unnecessarily complicated group structure, or where you may be in non-compliance with local regulation on substance or directorships. The legal structure map can help to mitigate risk by shining a light on the issue.
- Understand ownership: Global regulators are coming down hard on organizations, and are demanding to understand the ultimate beneficial owner of entities and businesses around the world. Creating a map of legal structures can pull data from your entity management system and bring ownership information to the fore. See who's on which board, how the entities interplay, and identify whether any personnel changes need to be made to remain in compliance with the local jurisdiction's regulations.
- Monitor compliance: When a map of the legal structures is based on real-time entity data, it can also help to flag potential compliance issues. It can be easy to miss a filing in a far-flung location if your entity management team is small and centralized; creating a map with looming filing deadlines and the general state of compliance can help to prioritize and focus entity management work.
- Undertake restructuring: Sometimes after M&A activity or a period of fast growth, it's worth taking a step back to check that the legal structure is still fit for the organization's purpose. Mapping out legal structures here can help to identify potential entity rationalization programs, or to show where there may be gaps in the structure.