Entity management refers to a governance system that compiles, organizes, and manages the corporate records of a business entity. Business entities include anything from multinational corporations to partnerships, limited liability partnerships, trusts, LLCs, and other organizational structures.

Legal entity management establishes a consistent framework for how a business entity and any subsidiaries conduct themselves. It aligns department leaders from an organization’s legal, accounting, taxation, and compliance divisions to establish a set of rules and principles that allow the company to operate in a legally responsible manner.

What is the purpose of legal entity management?

The purpose of entity management is to install a structured system that promotes effective corporate compliance and responsible organizational governance. Entity management policies and procedures ensure companies respect the interests of owners, shareholders, managers, employees, regulators, and the public at large.

Entity management is a central piece of an organization’s environmental, social, and governance (ESG) policies and procedures. ESG goals are broad commitments by legal entities to introduce greater diversity, sustainability, and environmental awareness into their operations. Legal entity management respects the objectives of those goals while maintaining strict policies and procedures to respect regulatory compliance.

What information belongs in entity management platforms?

Many companies use legal entity management software to remain in compliance with jurisdictional laws. These platforms function as secure centralized databases for all information pertaining to the organization.

Some of the most common information that can be found within entity management documents include:

• The legal name of the entity (or subsidiary)

• Organization classification (corporation, partnership, LLC, trust, etc.)

• Registered legal addresses for the company

• The official date of incorporation (for corporate entities)

• Jurisdictional certifications to legally conduct business

• Names of registry agents

How is a legal entity management system maintained?

There are a number of business assets that organizations use to maintain proper legal entity management. These assets include, but are not limited to, any of the following:

• Organizational charts

• Capital tables

• Tax reports

• Shareholder ledgers

• Minute book records

• Other corporate documents

Records from each of these documents give executive managers, directors, and shareholders keen insight into the inner workings and operations of the organization. Law firms and general and corporate counsel representing the organization can share the corporate documentation data with the proper regulators whenever necessary. Transparent recordkeeping keeps your organization in compliance, avoiding any disruptions to business growth and operations.

What are the penalties for non-compliance?

Regulators across North America have dedicated years to cracking down on white collar crimes to protect the public from the real consequences of those offenses. Organizations and business leaders that follow the letter of entity management avoid legal pitfalls that compromise the growth and security of their respective businesses.

Those leaders that fail to abide by the responsibilities of legal entity management risk subjugation of criminal indictments. One needs to look no further than charges laid against one former president and head of a namesake corporation as a cautionary tale of falsifying business records for personal gain.

In some cases, failures to uphold proper legal entity management practices can tarnish an entire entity’s future. Case in point: FTX founder and former CEO Sam Bankman-Fried faces multiple charges of fraud for the misappropriation of client funds. The collapse of FTX under SBF resulted in the company filing for Chapter 11 bankruptcy as new CEO John Ray III establishes proper corporate controls.

How can firms and general counsel use entity management platforms

The greatest benefit of legal entity management software is that it allows legal teams to digitize corporate documents and minute book records. By transferring corporate records into secure cloud-based servers, entity management workflows become more streamlined and time efficient.

Since the data is stored in the cloud, it eliminates the need to schedule in-person meetings with key stakeholders to certify the corporate documents. Anyone with biometric and hardware key authentication can access the records at their own convenience from any location. This makes it easier for legal departments to acquire approvals and signatory sign-offs on corporate data.

The platform is very intuitive and includes advanced search capabilities to find and review important minute book records in a matter of seconds. This is a more efficient way to conduct review sessions with stakeholders. If any executive has questions about a particular record, immediately pull up the minute book in question and present the answer. It’s a more efficient workflow for everyone involved!