Find news, events, articles, videos, and more that answer your questions and keep you up-to-date.
Visit Resource Center
Stay informed on compliance updates
Entity management has become increasingly complex, thanks in part to a growing mergers and acquisitions market that has businesses facing myriad and changing compliance responsibilities.
Global M&A (Mergers & Acquisitions) activity is on the rise. Nearly 70 percent of executives at U.S.-based corporations believe deal flow, which has set records in recent years, will continue to increase over the next 12 months, according to Deloitte’s 2018 forecast. Intralinks Deal Flow Predictor forecasts a 6 percent increase in the number of worldwide deals in the first half of 2018 when compared to the first half of 2017.
While this activity signals opportunities, it can also reveal flaws in a company’s due diligence processes that could negatively impact a deal and even lead to fines and penalties. One key way in which companies can improve the deal process is through strategic entity management, which includes having a properly maintained corporate organizational chart.
A corporate or entity organizational chart is an in-depth map of a company’s legal entities. It is meant to provide an accurate view of a company’s current holdings, including the parent and its subsidiaries, making it easy to visualize the otherwise complex relationships between entities in order to make informed business decisions—such as raising capital by spinning off a business segment or pivoting according to market and governmental forces (e.g., changes in tax legislation).
A well-maintained org chart can help companies stay on top of compliance and regulatory requirements. These include the growing number of KYC (“know your customer”) rules around the world; specifications for accounting transparency; cybersecurity mandates from federal agencies in the United States and abroad; and numerous end-of-year reporting obligations.
Although org charts are an important tool used by multiple departments (such as tax, legal, and accounting) and play a critical role in the M&A due diligence process, the maintenance of org charts can be treated as an after-thought. The org chart’s usefulness can also be restricted based on which department is maintaining it and how it is being maintained.
Often it is one department that is put in charge of the org chart. That department may be focused on adding data that is relevant to them, but unaware of what data to include that is useful to other departments.
Many companies create org charts manually using Microsoft PowerPoint, Visio, or other similar graphics software, which lacks the ability to create custom charts on demand. For an organization comprised of hundreds or even thousands of entities, updating the chart after each acquisition or ownership change is a huge undertaking. As a result, the data within the org chart is often incomplete or out-of-date.
In M&A transactions, where timing and accuracy are essential, a flexible, collaborative entity management solution with the ability to produce custom org charts can help prevent a lot of headaches.
At the start of any year, companies often look at ways to boost their profits and improve department efficiency. What does it cost to remain compliant? What subsidiaries should be sold? What entities should be dissolved? Where does it make sense to diversify? Is there a better way to reduce tax liabilities? What can a company do to set itself up for continued growth and success?
Entity org charts provide critical information for making informed decisions. With a dynamic, org chart solution, companies can:
To ensure the proper maintenance of an org chart, here are several best-practice suggestions:
A company may open or withdraw hundreds of entities in any given year, which can trigger various local, state and federal compliance requirements. In addition, corporate name changes, opening your doors in another state and other corporate changes will also require compliance action. Knowing such requirements in advance helps legal departments determine legal spend, manage budgets and build accurate calendars of activity to ensure dealmaking is not adversely impacted by compliance issues. It also helps an acquiring company know the full spectrum of liabilities it will take on, thereby giving it time to minimize the risks.
Dealmaking takes time. From developing a strategy and identifying targets to due diligence and closing, the workflow includes plenty of compliance deadlines, document retrievals and locating the data needed for these requirements. Sophisticated org charts can provide a view into the future so that organizations can make informed and strategic decisions about the next deal.
When properly maintained, an agile and comprehensive entity management system can help reduce last-minute scrambles and provide up-to-date information that all departments will need to successfully complete a transaction.
More in Compliance Solutions
More in Staying Compliant