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What is Legal Entity Management?
Legal Entity Management (LEM) is the process of managing and maintaining the legal, regulatory, and compliance status of a company's entities, regardless of whether they operate in one or multiple jurisdictions. This involves corporate governance, adherence to local and international regulations, and managing key corporate documentation.
Entity management can be centralised (which is often the case) or decentralised, depending on the company's needs. In a centralised approach, all legal entities are managed from a single system, promoting consistency and reducing administrative burdens. The downside is that those responsible are not present at the local frontline, making good communication lines crucial for success. A decentralised approach can be beneficial for organisations with highly diverse activities or where local autonomy is a priority.
Why is Entity Management Essential?
A well-developed legal entity management programme offers several benefits:
When Should You Start with Entity Management?
The answer is simple: it is never too early to start with entity management, but the approach depends on the organisation's needs and maturity. For all companies, structuring all the information that needs to be kept is crucial. For small and medium enterprises (SMEs), simplicity is often key. This means beginning with basic software tools or even spreadsheets to track their entities, as long as these methods effectively meet their requirements. Larger organisations, and especially multinationals, require a more advanced approach. They use specialised software solutions for automation and centralised control. As discussed during the roundtable, the complexity of large structures can only be managed by effectively using advanced technologies and a dedicated team.
Best Practices for Effective Entity Management
Which LEM tool to use?
When choosing a Legal Entity Management tool, organisations are often faced with the decision between dedicated LEM software and a "DIY" approach using general-purpose tools like SharePoint, Excel, or Power Automate. LEM software, such as Corporify, DiliTrust, Klea or Athennian, is specifically built for in-house legal teams and offers comprehensive features, including cross-functional collaboration and integration of document management. These tools are robust but can face challenges such as complex data migration, high costs, and the need for custom integrations. On the other hand, a DIY approach offers a low-budget solution that stakeholders may already be familiar with, making it ideal for smaller companies with less administrative burden. However, these DIY tools are not purpose-built for legal entity management, leading to limited features, a lack of automation, and potential hidden IT maintenance costs. Choosing between these options depends largely on the complexity of the organisation's needs and available resources.
How do you implement a LEM tool?
Implementing a Legal Entity Management tool requires a structured, multi-phase approach to ensure success and effective adoption. The first phase involves assessing the organisation's needs and consulting stakeholders to gain their buy-in. Including IT and data privacy teams from the outset is essential for addressing technical requirements and ensuring compliance. Building a strong business case, securing the budget, forming a project team, and appointing a capable project manager are also critical initial steps. The next phase is focused on tool selection: issuing a Request for Information (RFI) and Request for Proposal (RFP), involving IT again for evaluation, and conducting standard and custom demos (trials) to shortlist the best options. Once a contract is signed, the implementation phase begins, involving a detailed implementation plan with a phased rollout approach. Successful adoption requires comprehensive training, a clear communication plan, and strong change management practices to help users adapt to the new system. Repeated focus on change management throughout the implementation ensures that the new tool is effectively integrated into day-to-day operations.
Another significant consideration discussed during the roundtable is the concept of data hub integration. Dedicated LEM software often requires multiple individual integrations, meaning that each time an update or change is required, a new API must be implemented. This not only adds complexity but also raises potential security concerns, as managing numerous separate integrations can introduce vulnerabilities. By utilizing a data hub, these issues can be mitigated. A data hub centralises data management, reducing the need for multiple integrations while providing better control over data flow. This approach not only simplifies the IT infrastructure but also ensures that the legal team has reliable access to consistent, up-to-date information across all entities. Consequently, this streamlines compliance and governance processes effectively.
Conclusion
Legal entity management is an essential aspect of legal operations that allows companies to manage their legal obligations efficiently and effectively. Whether you are a small business just starting out, or a multinational with a complex structure, the importance of structured entity management cannot be overstated. By leveraging the right tools and processes, you can not only save costs and mitigate risks but also improve decision-making and ensure robust governance.
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