By Diane K. Brown
Dec. 16, 2010
Many companies share two entity management vulnerabilities. Their entity and compliance data are siloed within subsidiaries and multiple departments, and, they rely on common office spreadsheet and calendar applications to manage their entity data. Any company, regardless of industry, can face problems if they rely on limited, inconsistent tools and processes for entity management and business licensing.
Surprisingly, many companies remain unaware of the dangers of inadequate entity management practices. Using piecemeal legacy tools inevitably yields inaccurate, outdated data that’s not coordinated with requisite rules and deadlines. This renders the vital corporate record virtually useless for reporting and compliance purposes. The consequences and costs to a business’ bottom line and reputation can be severe.
Inefficiencies Lead to Mistakes and Non-Compliance
Companies are typically structured with many entities registered in various jurisdictions with different executive officers for each entity. When these companies rely on common office applications for entity management, they face multiple risks:
- Personnel who are not appointed officers may execute documents that they are not authorized to approve.
- The company can miss filings or make unnecessary filings because information on their entities, states of registration, individual jurisdictional compliance requirements and filing deadlines are not integrated.
- Inaccurate filings can be made if staff members responsible for compliance are scattered in multiple offices or do not have first-hand access to complete entity information.
- The organization loses valuable staff time to redundant, manual data entry in order to keep data up-to-date in separate applications.
A Higher Risk Environment for Entity Compliance
In a world of increasing reporting requirements, regulation and enforcement, improperly managed corporate compliance can have costly ramifications. At the state level, attention has turned to enforcement of annual report filings with the Secretary of State. Jurisdictions are constantly amending their requirements, often expanding the scope of requirements to include additional entity types.
Some states hold individual directors, officers, managers or agents personally liable for conducting business on behalf of a foreign corporation that failed to qualify. Penalties can be stiff, ranging from $500 to $5,000 on each officer, director and employee.
Business Opportunity Costs
Entities can also lose business opportunities if their missed filings result in a loss of good standing in the states in which they do business.
Entities not in good standing also risk losing the right to use their name in the state. Some states protect the names of administratively revoked or dissolved companies for a short period of time; others do not protect the names at all. A company can spend thousands of dollars to get itself back into good standing, and then must re-qualify under a fictitious or conflict name if another company began using its name while it was inactive.
To strengthen compliance programs, many large businesses are increasingly demanding proof of compliance from their vendors and contractors as a condition of doing business.
Coordination and Collaboration Reduce Risks
To avoid sanctions and lost opportunities, a corporate secretary must have a holistic view of where the company’s subsidiaries are doing business, combined with all requisite entity compliance filing requirements.
Using a secure system, these corporate secretaries can transform their entire organization’s daily business compliance work with several process improvements:
• Efficiency. When data is entered only once or is automatically pre-populated, the organization saves time and virtually eliminates data entry errors. A customizable calendar tool automatically tracks statutory and regulatory filing dates and events related to contracts, agreements, and trademark expirations; and generates e-mail alerts to responsible parties.
• Internal controls. The corporate secretary becomes a manager of secure, controlled sharing of entity data across various departments and subsidiaries. They can delegate data entry to the persons responsible for specific entities, while increasing their oversight, control and visibility over entity record updates.
• Collaboration across the organization. A central entity management system ensures the whole company is working with the same information and that subsidiary company information is accurate and transparent to all users at all times.
Entity Management Is Essential to Reduce Risk
In a more aggressive enforcement climate, proactive entity management controls have become a must-have business function. Company managers may not realize the scope of the risk in using piecemeal office applications, or may be resigned to penalties and duplicate effort as unavoidable costs of doing business. But, like a boat with several hidden leaks, they are taking on water faster than they know. Their unprepared corporate secretaries may be one unexpected failure away from sinking their careers.
Corporate secretaries can eliminate the dangers with a single platform, breaking down internal silos and providing all stakeholders with a transparent, secure and holistic approach to entity management and corporate business compliance.
Diane K. Brown is the executive vice president and general manager of CT Corporation, where she is responsible for ensuring the products and services of the business unit, which focuses on services and solutions for managing statutory representation, continue to lead the industry and provide customers with top-level solutions. She can be reached at CT-info@wolterskluwer.com