The lifecycle of a business has three main stages; (1) formation, (2) compliance/maintenance while conducting business and (3) termination or dissolution when the business is no longer active. During the stage when a business entity is active and conducting business, it is critical that accurate core information about the entity be maintained and that all federal, state and local regulatory, statutory and administrative compliance requirements are met. This will maintain the entity’s good standing status and ability to conduct business. The consequences of not managing this information in a timely and accurate way can range from payments of penalties and interest for late filings and tax payments to being restricted or delayed from closing on a loan financing. Multiply one business entity in any company to include 5 to 100 subsidiaries and/or affiliates and you’ll find that, while the core information maintained for each business entity is similar, even for different entity types in different states, the compliance requirements may vary greatly. This obviously becomes even more complex when a company has business entities operating outside the U.S.
Usually, the General Counsel, Company Secretary, Compliance Officer or a paralegal will be responsible for what is often referred to as entity “housekeeping”. This can be a full time job depending on the number of entities being managed in multiple jurisdictions. Fortunately, there are many web-based entity management systems that can drastically reduce the amount of time needed to keep up with business entity maintenance requirements.
A secure online entity management system will allow you to maintain, track and report the information needed to meet various compliance, due diligence or closing deadlines. Obviously, there is an upfront time commitment required to set up the system with the correct information and documentation. However, once it is done, you will experience increased efficiency and cost savings.
What is Typically Stored in an Entity Management System?
Below is an overview of the types of information maintained and tracked, as well as a sampling of some important documentation stored for easy access within online entity management systems.
- Core Entity Information
− Exact legal name of entities
− Jurisdiction of formation and where qualified/authorized to conduct business
− Dates of formation, amendments, mergers or dissolution/termination
− Federal, state and local ID #s
− Principal business address
− Registered agent name and address
− Business purpose
− Owner and manager information
- Compliance Due Dates
− Federal and state income and franchise tax due dates along with event notification
and ability to run on demand reports of upcoming due dates
− Business license renewal dates
− International compliance due dates (i.e., date of filing of Annual General Meeting
for Hong Kong business entity)
- Important Entity Documents
− Charter documents (i.e., Certificate of Formation and all amendments date-stamped by
state of Delaware)
− Bylaws, limited liability operating agreements, limited partnership agreements
− Initial organization consents/meeting minutes
− Annual meeting minutes/consents
− Periodic minutes/consents authorizing specific entity actions
− Legal proceedings (i.e., copies of Summons and Complaints along with related answers
and court documents per case; typically accessible by a limited number of people
within the company)
− Structure charts illustrating ownership
Examples of the Usefulness of Online Entity Management Systems
Examples of the types of situations where an online entity management system provides significant advantages to companies include:
- Meeting ongoing compliance deadlines to ensure all business entities remain in good standing with state corporate and business licensing authorities: A good entity management system can save a corporate secretary a significant amount of time and effort in tracking annual report and license renewal due dates and in having the needed information at his/her fingertips to accurately complete the reports and applications. Significant late fees, penalties or loss of authority to conduct business in a jurisdiction can result from missing compliance deadlines or not providing the correct information. An entity management system can help you avoid these pitfalls.
- Avoiding delays in providing required information/documents to counsel related to due diligence for loan applications or for the sale of a division of a company: In these situations, the corporate secretary is usually asked to provide a report of the core information noted above related to each entity involved in the transaction. In addition, copies of the charter documents, structure charts and copies of the basic organization documents are usually required. Accessing this information and documentation from an online entity management system instead of going to multiple sources to obtain it will streamline the process and ensure a quick response to time-sensitive requests.
There are many other reasons why entity information is accessed and shared within companies on a daily basis. An entity management system that can be easily updated, accessed 24/7 and facilitates the quick delivery of accurate, current information/documentation is a critically important tool for the corporate secretary.
This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice.