Legal entities are critical to manage risk, build businesses, and comply with regulations. These 9 Principles of Legal Entities help business lawyers and their clients maximize the value of legal entities.
Need a quick refresher on legal entity management or do not have time to read the entire article? Here is a summary of the 9 Principles of Legal Entity Management:
Whatever corporate structure your clients use, the practice of legal entity management can improve client engagement and help deliver higher value legal services.
A corporate registry is a list. A fancy list, but a list nonetheless. A single list of legal entities is the critical first step toward entity management.
The corporate registry is a launchpad for access to any legal entity. It is also useful for segmenting and searching for legal entities when there is a large corporate family or client base.
A single registry also allows for reporting from lawyers to members of management. Imagine easily answering the following questions:
The inventory of all legal entities is the keystone for entity management.
To extract more business value from a portfolio of legal entities, we need to look through the documents for actionable data.
At a minimum, legal entity data should include the following elements:
Some of these items are single data points, like the legal name. Others, however, are complex data types like officers, directors and owners.1
Whether simple or complex, these data elements give a holistic view of a legal entity on one page.
The corporate registry contains a list of every entity we control or manage. We do not manage every entity which is relevant to our legal entities.
Legal entities which have an ownership interest in one of our entities but is not in our corporate family is an unrelated legal entity. The distinction between related and unrelated entities is important for entity management.
An unrelated entity might be an outside investor or individual owners. Any legal entity that appears on our company org chart, but not in the corporate registry is an unrelated entity. For those entities, we do not need to track their data and documents.
The data-driven entity management approach allows us to accomplish something special. We can generate company org charts with minimal effort.
When ownership is data, then software can explore the relationships between legal entities to create the legal entity ownership chart.
A data-driven org chart has distinct advantages over a hand-drawn org chart for legal entities:
To get the benefit of data-driven company org charts, it is only necessary that you capture the immediate parents and subsidiaries. Software calculates all the other relationships.
In a corporate family, individuals often serve on many boards and as officers for many companies. One of the most bothersome questions is "What companies does Person A serve as a director or officer?"
With document-centric entity management, this question is time-consuming and fraught with error.
However, entity management grounded in data makes answering this question almost trivial.
Business lawyers often need to know who was on the board of directors when a certain decision was made. Lawyers can perform that analysis in minutes when we capture the date of appointment and the termination date.
With most commercial businesses, officers and directors are appointed until their appointment is terminated, voluntarily or involuntarily. In those cases, a lawyer or legal assistant would simply add the termination date when the termination is known.
Some board structures and non-profit by-laws specify that an appointment to the board of directors is for a specific period, such as two years. If we know the termination date in advance, then we can also set an automatic alert to remind us of the appointment's impending end.
Data-driven entity management means that lawyers and corporate secretaries retain access to both current and past officers and directors.
Jurisdictions intersect with legal entities at many points during the lifecycle of an entity.
At formation, the entity has a place of incorporation. Legal entities have a principal place of business.
Legal entities which are operating businesses across jurisdictions might have to file foreign authorizations to do business in the other jurisdiction.
Businesses which adopt trade names, also called DBAs or doing-business-as names, likely have to file that trade name with each jurisdiction in which they do business.
It is tempting to treat all those filings as documents, because they are, well, documents. Unfortunately, doing so causes lawyers to miss two opportunities:
Global companies must also deal with an added layer of complexity. Some countries require legal entity filings at the national level, others at the state or provincial level, and the remainders are a hybrid system.
Tracking legal entities globally requires data-driven entity management.
Corporate legal work is technical. Where the work delivers a financial benefit, like tax savings or liability avoidance, clients might appreciate the results.
Traditionally, there is little or no opportunity for business lawyer and client to collaborate on the details of the legal entity. The client has little opportunity to appreciate the details of the lawyer's work; the lawyer has less opportunity to engage the client on an on-going basis beyond the necessary board and shareholder meetings.
Entity management changes that equation. Business lawyers can now generate automatic notifications about compliance obligations for clients.
They can even collaborate through task management and status updates for each legal entity in the corporate family.
The number and complexity of regulatory requirements grow every year. Many business lawyers miss the opportunity to work with clients on routine compliance matters.
Entity management transforms compliance requirements into client development opportunities. Each compliance requirement draws into jurisdictional data, documents, and deadlines. Entity management harnesses that data so that lawyers and clients can collaborate on effective solutions.
These nine principles of legal entity management allow lawyers and other legal professionals (paralegals and legal assistants) to deliver more value to clients and deepen their client relations.