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ComplianceMay 26, 2022

Outsourcing: An integral part of managing midsize business growth

According to the National Center for the Middle Market, middle-market businesses reported year-over-year performance improvements in 2021. Predictions for 2022 are also strong, with most companies expecting healthy revenues and employment growth. Fueling this growth are new products and services and continued expansion into domestic markets.

But with change comes legal challenges. According to the Legal Outsourcing Outlook 2022 report, general counsels expect a 25% work increase over the next three years. Yet, 88% plan to cut budgets during this period.

One of the ways that organizations are managing these conflicting challenges is through outsourcing. Indeed, businesses of all sizes rely more on outsourcing, with the increase especially prevalent among companies with revenue between $1 billion to $4 billion.

Let’s look at which areas make sense to outsource, the benefits realized for general counsel and other departments, and questions to ask when evaluating a service provider.

Deciding what to outsource

Having essential skills on order, when needed, can empower midsize companies to respond quickly to shifting market conditions. But you have to contend with staffing expenses, training, and overseeing full-on departments when doing things in-house. What work should you outsource and what should you handle internally? Making the right decision is especially important since managing legal risk related to company information is one of the foremost concerns among in-house counsel.

One area that is a strategic necessity for managing that risk is entity management. Today’s counsel must manage complex entity management challenges, such as complying with obligations in multiple jurisdictions, managing reputational risk, and reevaluating operating models and governance structures.

These issues are exacerbated by scale. According to the Legal Outsourcing Outlook 2022, organizations may manage as many as 13 entities in North America alone, with dozens more in other regions.

But the knowledge required for entity management can’t be easily distilled into software. When it comes to the nuances in overseeing entities between jurisdictions, as well as the need to keep up with changing regulations, even skilled in-house teams can struggle with entity management. It makes sense to look into outsourcing.

Benefits of outsourcing entity management

Outsourcing entity management can provide instant access to expertise not available within the organization in specific legal processes, including regulatory compliance, and the intricacies of mergers and acquisitions.

It can be a cost-effective solution for carrying out repetitive work that requires a high level of accuracy and for handling excess work during high-volume seasons.

Outsourcing entity management to the right service provider can also help to reduce risk. With transactions and expansions, it’s difficult to ensure that all requirements have been accounted for and that each step is executed properly. One missed step can risk the legality of an entire company. Risk also surfaces when a non-compliant entity is part of a transaction.

What entity management can look like on a departmental level

The optimal outsourced entity management solution not only plays an essential role in supporting transactions, it also benefits departments company-wide and fosters departmental cross-collaboration.

For the corporate secretary, entity management can provide the following benefits:

  • An automated record-keeping process to maintain and administer official company records and processes
  • One source of data to maintain a complete compliance view with activity history
  • Alerts, quick reports, a customized interface, and real-time data to effectively communicate with other departments
  • One data source to orchestrate compliance plans, make decisions, and delegate responsibilities
  • A fully integrated record-keeping interface with the SEC for timely reporting for ownership changes

General counsel can expect:

  • A place to collaborate with executives on business strategy, risk aversion, mergers and acquisitions, prospects, and more
  • High-level overviews and access to quick views and reporting
  • A repository of final negotiated documents
  • Safeguarded data, such as protection against duplication during staff turnover and mishandling of data
  • Commitment through technology to implement top processes to comply with regulatory requirements and industry best practices for corporate governance

The tax department can be provided with:

  • Insight into corporate structure, specific jurisdictions, business purpose and licenses, Secretary of State registrations, and annual report compliance
  • The ability to track tax reporting requirements and ensure compliance of tax laws
  • Quick, easy access to a single source of entity data and documents for financial reporting
  • A way to track due dates
  • Alerts about new entities
  • The ability to create custom organizational charts by business, group or unit and visually identify corporate structure
  • Coordination of data with annual report management

The finance department benefits from:

  • Tools that ensure compliance
  • Self-service access to accurate entity data, including access to contracts and agreements
  • Secure bank account information, including account numbers and signing authority
  • Customized organizational charts

Paralegal and legal assistants are provided with:

  • An integrated central repository to manage corporate records and store documents
  • The ability to create organizational charts, calendar out compliance events and create customized reports quickly to create compliance filings
  • Tools to efficiently manage powers of attorney
  • A method for distributing and obtaining signatures on agreements or contracts
  • Real-time access to data to quickly respond to questions from stakeholders about entity data
  • Streamlined workflows and processes, easy data entry and upkeep

And auditors can expect:

  • Secure and customized access to entity information including documents, corporate summary reports, and other comprehensive reports
  • Proactively produced reports and tools for efficient communication
  • Relief from the typical burdens of secure information sharing
  • Transparent, technologically efficient management of corporate records

Identifying the right service provider

There are a few standard questions you should ask when in the process of selecting a service provider for entity management. They include the following:

  • Do they have the right expertise?
  • Can they work without extensive direction?
  • What are the services offered?
  • Are they flexible in terms of demand or usage?
  • Does the provider come recommended by your peers?
  • Does the provider have a good reputation?
  • Will they customize and adapt their solutions to meet your project’s needs?

By fully exploring these questions, your business can maximize the odds of finding the right partner.

Conclusion

Entity management continues to grow in importance for compliance and governance professionals, given that the aims of both rest squarely on maintaining accurate and dynamic corporate records. It is a strategic function within modern organizations that helps support not only compliance and governance but also collaboration.

The right entity management solution is the foundation for safe and streamlined business practices. You need a trusted partner that can help your business achieve compliance, ensure precision, maintain good standing, and support transactions — across all parts of your business.

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The CT Corporation staff is comprised of experts, offering global, regional, and local expertise on registered agent, incorporation, and legal entity compliance.

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