Legal Entity Management: Beyond Compliance

With a global environment characterised by regulatory change and a growing emphasis on multi-jurisdictional scrutiny and transparency by regulators, stakeholders and investors, effective entity management is entering the public domain.

The time for action is now. Group structures have become increasingly complex. Compliance obligations and processes vary in complexity by jurisdiction, and statutory compliance timelines are often non-negotiable. These regulatory pressures have pushed effective entity management up the agenda for Boards and General Counsel. Organisations are responding to greater scrutiny by regulators and the public by being more proactive in promoting ethical behaviour.

Entity compliance is becoming a focal point. For some time, governments have been saying that enforcement is increasing. New rules are being introduced or previous ones are being better enforced. Fines can be high in some countries, liability can be personal to directors, and there is a risk of asset seizures or strike offs because of non-compliance.

The combination of external pressure to be compliant and an internal desire to benefit from compliance is shifting attitudes towards entity management.

What is involved in Legal Entity Management? There are four pillars, specifically:

  1. Annual compliance and corporate changes
  2. Data collection and document management
  3. Organisation charting and corporate planning
  4. Legal entity data and deadline tracking

Further down this blog, we will take a closer look at the annual compliance and corporate changes.

Technology as enabler

Although entity management compliance is gaining priority in agendas, many organisations are still only taking action when a certain event triggers their reaction. Whatever the reason for such a project’s launch, there are several clear considerations in meeting the compliance challenge.

Technology is seen as an enabler, allowing legal teams to do more for less. Fundamentally, technology on its own does not solve the problem. It needs to be populated and properly maintained with high quality data. Whatever the role of technology in achieving better entity management compliance, people very much remain an important part of the solution.

Entity management and compliance is a rapidly developing area. We observe many examples of organisations struggling to keep abreast of changes across their global footprint, increasing the risk of non-compliance. An effective way to reduce this risk is to work with providers specialising in compliance, keep up to date with regulatory developments, and invest in technology with a commitment to incremental improvement.

The latest technology allows stakeholders to obtain an up to date picture at the press of a button, based on a single source of truth. The old approach had different functions each maintaining their own versions of the legal entity map within different silos across the organisation.

Annual compliance and corporate changes

As mentioned, annual compliance and corporate changes is one of legal entity management’s four pillars. The main event within this pillar is of course the annual general meeting that approves annual accounts.

As you may know, annual accounts must be submitted to the general meeting for approval within six months after a financial year’s closing, and in accordance with the company’s articles of association.

The penalties for not approving the annual accounts on time can be significant; it is therefore very important to ensure this within the stipulated period:

  • Article 3:1 CAC (‘Companies and Associations Code’) stipulates that, if annual accounts have not been approved within six months after the end of a financial year, damages to third parties will, in the absence of proof to the contrary, be considered as consequent to such negligence.
  • Article 3:43 CAC provides for a fine (criminal sanction) in case directors violate articles 3:1 and 3:10 CAC (fine ranging from EUR 50 to EUR 10,000)
  • Article 2:56 CAC stipulates that all directors are jointly and individually liable, towards both the legal entity and third parties, for any damage resulting from a breach of the provisions laid down in the CAC and in the company’s articles of association.

An entity management tool can support General Counsels in effectively managing the above and other event driven changes.

The types of technology in use range from a global repository holding minutes and excerpts from the company register, to systems capable of tracking due dates and document creation. Fundamentally however, it should be repeated that technology on its own does not solve the problem, people remain an important part of the solution.

At the end of the day, an Entity Management tool should effectively support GC’s and Legal to efficiently manage group entity compliance, freeing up time to focus on more nuanced, legally challenging and less repetitive tasks.

Please find the entire article on Legal Entity Management by visiting this page.


If you have any questions concerning the items in this newsflash, please get in touch with your usual Deloitte Legal - Lawyers contact at our office in Belgium or:

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