Subsidiary governance can be a delicate balance of competing priorities and masses of entity data no matter where entities are located, but when you start to add in a global outlook – that is, when international entities are involved in the structure, especially if those international entities are far away from the local entities – then entity management can become an incredibly complex beast.
In addition to as keeping up with regulatory movements in the local jurisdiction, entity managers and compliance teams must monitor the status of regulators and the policies of governments wherever the group has a subsidiary located. While this can be as simple as subscribing to notifications, what happens if those international entities are located in countries that don’t speak the same language as HQ? And how can the entity manager know which entity data is important to keep and which can be archived if requirements differ from those of local entities?
While the basics of entity management are relatively similar wherever entities are located, bringing in an international element can increase the burden of compliance for the legal operations team.
Keep entity data up to date when managing local entities
When managing local entities, the traditional process of entity management applies. That is:
- Incorporate and file according to jurisdictional requirements
- Ensure all file formation and qualification documents are prepared and stored correctly
- Obtain any licenses or registrations necessary in the jurisdiction, such as those needed to employ people
- Organize foundational documents, such as bylaws, articles of association, stock certificates, draft resolutions and so on
- Name and appoint officers and directors, and keep such information up to date in the corporate record
- Maintain corporate governance data on an ongoing basis, conducting periodic shareholder and board meetings as required by the local jurisdiction and the local entity governing documents
- Establish a system to record, distribute and archive corporate activities and documents such as minutes, consents, capital contributions and dividends – this information must be ready to be efficiently and effectively produced whenever an auditor or regulator requests it
- Complete annual filings, such as annual reports, tax returns, licensing renewals, financial statements and domain name renewals
There must be a clear chain of command established, as well as a process for signatories, and legal operations and compliance teams must ensure entity data is kept up to date when managing local entities.
These processes are relatively straightforward when managing local entities – if in doubt, you can always go to the local offices of regulators and discuss your needs with them. However, when you start dealing with entity management across borders, life becomes less simple.
Managing international entities from a central point
What happens when you have to start considering the impact of global regulations on your entity management? How can you keep up to date with the requirements of a jurisdiction in a far-flung location, or one across the border that speaks a different language?
While global regulatory movements are going in an increasingly similar direction – one toward transparency and sharing of information – each local jurisdiction will still localize these ideas to make them work for the specific business environment and culture. For example, it might be perfectly acceptable to offer bribes to officials to get a license in one jurisdiction, but you could end up behind bars if you did that in another.
Organizations usually take one of two approaches to managing international entities: They’ll either devolve compliance and governance to the local jurisdiction level, setting general corporate guidance but allowing freedom for local expression or they’ll centralize compliance and manage entities from the top, giving direct instruction for all to follow and keeping a tight rein over governance operations.
Whichever approach is decided upon, entity managers both centrally and locally will need to consider all aspects of regulation, including:
- Data protection
- Health and safety
- Environmental responsibilities
- Financial and accounting requirements
- Employment law
- Tax law
- Advertising regulation, and, of course,
- Corporate law, such as the S. federal sentencing guidelines for organizations.
Managing international entities also means you’ll need to be aware of reporting duties in each jurisdiction. These will differ depending on the sector, industry and jurisdiction in which the entity is incorporated, and how that jurisdiction has interpreted global regulatory movements such as FATCA, BEPS, CRS, AML, MiFID and SOX. The flexibility in interpretations is why many entity managers seek local support when managing international entities – it can be a way to help ensure compliance when you’re not physically able to check things, while also easing the burden of staying up to date with regulatory changes in multiple jurisdictions.
Harness technology to get a central view of both local and international entities
In terms of managing both local entities and international entities, it’s imperative to keep the corporate record and all entity data up to date and easily accessible. Schedule regular checks across the whole subsidiary structure; you want to not just make sure your employees are following the right processes, but also that any automated filings are doing what they should, that there are no new deadlines or regulations to take stock of, and that your entity management is fit for purpose.
Legal compliance is not a one-time thing, and organizations should make sure they can both demonstrate a commitment to compliance and governance, as well as having the right measures in place for compliance and a program to regularly self-assess the status of compliance. This is true whether managing local entities or managing international entities, though processes will need to be more rigorous when working across borders. Remember, too, that a domestic entity located in a different state could be considered a foreign entity if it’s a different jurisdiction (such as in the United States).
Incorporating a cloud-based entity management software as part of regular entity hygiene can help to ease the burden of compliance and ensure entity data is kept as up to date and accessible as it needs to be both locally and internationally. Entity management software, such as Diligent Entities, helps organizations to centralize, manage and effectively structure their corporate record to improve entity governance. This, in turn, helps to better ensure compliance, mitigate risk and improve decision-making, both locally and internationally.
Diligent Entities can be used to store entity information, documents and organizational charts in a highly secure format to create a single source of truth for the corporate record, with compliance calendars, reminders and workflows enabling better entity data. The system also seamlessly integrates with Diligent Boards and a secure file-sharing platform to create the Governance Cloud, an all-in-one governance and compliance ecosystem offering an efficient, cost-effective solution for risk and compliance issues.
Get in touch and request a demo to see how Diligent Entities can help you to surface the right information to the right people at the right time, and make managing local entities or managing international entities a more streamlined operation.