Legal entity management: lessen risk and complexity.

• Author: Roland, Thomas
• Position: Legal Issues

Though they may be inherited through mergers and acquisitions formed to meet specific financial and operational goals, legal entities accumulate quickly. Over time, legal entity structures grow increasingly complex as a result of global expansion, M&A, joint ventures, tax planning, shifting legal an. compliance requirements, regulatory obligations and many other factors.

The effects of an overly complex structure are often overlooked or underestimated, opening the door for misstatements, incorrect application of trading models, missed filing deadlines and costly duplicate legal entities that complicate operational complexity and transaction structuring.

The current environment has produced an exponential increase in regulation, market volatility, growth, international expansion and shifts in business direction an. focus that can complicate legal entity management. While it may not be the first item on an organization's to-do list, alignment of its legal entity management strategy with overall business needs could hold the key to unlocking value and managing costs and risks.

Rather than wait for a crisis, busi-nesses can obtain immediate benefits by proactively tackling legal entity issues before they become critical. Actively managing legal entities and streamlining or eliminating transactions that no longer add value can reduce compliance and processing costs while also lowering an organization's risk profile.

Lack of Ownership - A Big Barrier Regardless of the cause, complex legal entity structures can expose organizations to excessive risk and unnecessary costs. But simplifying the structure brings its own barriers, and obtaining buy-in across the enterprise is vital.

Even more important is establishing responsibility for the process. Despite the fact that numerous areas of the business are affected by complex legal entity structures, no single business function is typically responsible for end-to-end management of legal entity management activities.

When the term "legal entity" is spo-ken, the enterprise invariably looks to its tax and legal departments to take the reins. But aren't the effects felt across the business, reaching from finance and accounting to information technology, operations and treasury? And how do human resources, payroll, sales, procurement, regulatory and GRC (governance, risk and compliance) functions fit into the picture?

The reality is that legal entity man-agement is an enterprise-wide issue, and all functions...