As firms expand globally, managing legal entities across multiple jurisdictions has become increasingly complex and costly. Legal entity management (LEM) generally involves multiple teams – accounting, tax, investor relations, compliance, and legal counsel – and requires navigating intricate legal frameworks, tax laws, and regulations, while handling large volumes of dynamic data.
Today, about 67% of firms manage entities across three or more jurisdictions, emphasizing the scale and scope facing asset managers. Fortunately, the right combination of technology, data, and process can efficiently overcome LEM challenges and provide real-time visibility to all key stakeholders, as explored below.
Common LEM Challenges and Solutions
Disparate and Inaccurate data
Firms often employ complex and heavily manual processes, such as offline spreadsheets, email chains, approvals, and disjointed data repositories. These labor-intensive practices not only introduce operational inefficiencies but also increase the risk of disruptions, non-compliance, and penalties. Additionally, firms commonly encounter situations in which their entity data is outdated or does not align with the records of their registered agents, both domestically and internationally.
Solution: Centralization and Validation
An effective approach to mitigating this challenge is centralizing entity data so that accurate information is accessible across all teams. To avoid paying unnecessary fees or working with inaccurate information – such as mixing dissolved entities with active ones – it’s important to collaborate with Registered Agents to maintain up-to-date and accurate records in a central repository.
Before centralizing to a system of record, validate that the data is current, complete, and accurate. Next, conduct a cross-functional audit by engaging each internal stakeholder group – finance, tax, legal, and compliance – to gather their spreadsheets, formation documents, tax information, and dissolutions. This process ensures you uncover critical data points that may be missing or outdated.
For example, the tax team might have initiated the dissolution of an entity, while the credit finance team may not yet reflect this change. By consolidating all inputs and comparing them to reports from your Registered Agent, you can identify and reconcile inconsistencies. This manual “data wrangling” phase will paint a comprehensive picture of your entity landscape before moving forward with an LEM solution.
Lack of Automated Business Processes and Workflows
Entity management built on manual business processes and workflows can create confusion for the business functions involved. Teams may have difficulty locating up-to-date documentation to support their business processes, leading to bottlenecks and potential errors. Likewise, correspondence and updates to entities through email can become problematic due to a lack of visibility. Often, key stakeholders may not be informed of changes, or, more often, it’s far too late in the workflow.
Solution: Define and Automate Processes and Workflows
Automated workflows for entity creation, modification, and liquidation streamline the lifecycle process, allowing all teams to access source data when needed. To implement automation, start with holding discovery sessions with relevant internal team members to draw a current-state process for each workflow.
This enables the team to identify how current-state processes can be transformed into the optimal target operating state within the system of record. These sessions are critical to understanding the pain points and opportunities to enhance the process to complement a new system.
Automating business processes related to LEM requires aligning with the broader enterprise governance agenda of an organization. Asset managers must navigate complex stakeholder dynamics, reconcile disparate data sources, and establish clear data stewardship responsibilities. Success depends on fostering strong collaboration between legal, compliance, operations, and data governance teams to ensure that automation efforts are scalable, auditable, and aligned with the firm’s strategic data policies.
An example of how to accomplish this can be conducting recurring touchpoints with designated data stewards from each stakeholder group. This consistent approach helps keep the data governance team informed of key updates, enabling them to assess and manage the broader impacts on enterprise-wide data policies, strategy, and governance frameworks.
For organizations looking to automate their process and workflow, it’s the right time to evaluate a software solution. For LEM, firms may choose to buy a third-party solution with specific entity-management capabilities or they may consider developing an in-house custom solution to meet their exact needs.
Tech-Enabled Legal Entity Management: Buy v Build
Introducing technology to the entity management process is an opportunity to centralize data, increase accuracy, and automate workflows, creating a unified platform for internal teams. Companies gain the ability to adapt quickly to regulatory changes, promptly notify stakeholders of updates, and proactively enhance their legal entity risk posture.
Further, centralizing legal entity data in a technology solution allows it to be more easily integrated and shared across other business systems, like accounting and CRMs, or into a data lake to increase visibility.
For teams considering which kinds of software to prioritize and how to invest, a closer look at the technology market can shed light on which path to take: buy vs build.
Buy
Buying LEM software is often more cost-effective than building a custom solution, as it reduces upfront development costs and lowers the total cost of ownership. Many off-the-shelf solutions such as Athennian, Diligent, and hCue are specifically designed to meet the complex needs of asset managers, including efficient management of organizational charts and workflows. These platforms have teams dedicated to long-term technology enhancements and the deployment of upgrades and AI. These strategic resources help internal teams focus on daily operational tasks while the vendor supports the implementation roadmap and delivery.
Off-the-shelf solutions can also provide strong support teams, active user communities for guidance, and easily defined workflows that are regularly updated and managed on customers’ behalf. By choosing a ready-made solution, firms benefit from ongoing improvements and scalability without the resource-intensive process of custom development.
Build
Building a custom LEM system allows for greater flexibility and customization for specific business needs and requirements. Asset managers may want to create a system that integrates seamlessly with existing platforms to ensure consistent data flow and real-time data availability. However, building and maintaining a system requires significant time, resources, and technical expertise. Leveraging an existing platform as a foundation for development can help reduce these costs and operational constraints.
Regulatory Compliance and Reporting
Regulations like KYC, AML, FATCA, CRS, and FinCEN are evolving, increasing the difficulty of maintaining accurate, updated compliance data. This becomes more complex when managing cross-border reporting, where different jurisdictions impose varying requirements.
Solution: A Robust LEM System
An LEM system enables faster and more efficient regulatory compliance that teams would otherwise find difficult to manage. These systems track evolving regulatory requirements, update business rules accordingly, and include reporting capabilities to verify compliance. The net effect is timely reporting and the mitigation of filing errors or penalties.
Organizations ready to advance technology-enabled LEM capabilities can contact CrossCountry Consulting to get started.