Entity health checks: ensure your company stays compliant

Operating a cross-border business is a huge undertaking. Companies find themselves burdened with the responsibility of keeping track of legislative and regulatory developments across multiple jurisdictions. Local rules and regulations can often change, leading to oversights or misunderstandings that can see businesses become non-compliant – opening themselves up to both penalties and reputational damage. 

During the process of an acquisition, for example, information of former directors or addresses held on file may not be promptly updated with the relevant authorities, leaving a company on the wrong side of compliance. 

Sometimes entities are set up in haste to meet deadlines and skeleton legal teams are scrambled together, meaning that resources are thinly spread, with necessary actions overlooked. This can lead to management not being fully aware of the local and international obligations involved, and how and when they should be maintained and updated.

The consequences for non-compliance can be punishing. Organisations can be faced with financial penalties, or even lose the privilege of doing business in a specific jurisdiction. In more severe situations, company directors can be held personally liable and, depending on the jurisdiction, even face imprisonment. 

Due to world events of recent years, many jurisdictions have been forced to rapidly adapt and streamline their operating processes by embracing digitalisation. Typically, this is a positive step towards reducing business friction. However, the hasty introduction of digital processes to replace traditional, in-person interactions has, in some cases, actually introduced some short-term complexity. TMF Group’s latest Global Business Complexity Index report delves into these challenges in more detail. 

But with the rise of digitalisation, combined with plans to incorporate and expand businesses into new jurisdictions, it’s critical that entity health checks are carried out to ensure that all documentation is kept up to date, and to ascertain if any new rules or regulations have been introduced in any one jurisdiction. 

With this in mind, it is clear that multinational businesses would benefit from dedicating resources to periodically reviewing their overseas structures and processes, to ensure that all businesses are fully compliant in the jurisdictions in which they operate. 

But what does this entail exactly, and where should you begin?

When it comes to ensuring that an entity remains compliant, planning is often the key to success. Carrying out frequent entity health checks is not only good practice, but highly advised to keep all legal bases covered. This is particularly important when acquiring an entity in an M&A transaction, or when making the transition from a de-centralised to a centralised governance model. For example, simple measures - such as introducing a compliance calendar for each jurisdiction and entity type - can help a business stay on top of filing deadlines. 

It’s also wise to bring in local resource to help keep up to date with the latest rules and regulations. Not only will they speak the language of the jurisdiction in question, they will also be familiar with the local business culture, and will therefore be well-positioned to keep abreast of any changes that will occur from a legal and administrative perspective. 

A health check should cover some of the entity basics, such as: 

• company name 

• registration number 

• date of incorporation 

• trading status 

• registered address and main business address 

Additionally, it should also extend to information regarding: 

• shares (types, numbers, values, capital) 

• shareholders (and shareholder meetings) 

• financial statements (filings, year-end, reporting, deadlines, last date filed) 

• board meetings 

• directors and officers 

• any powers of attorney

Providing you have the time and resources available to you, it is possible to carry out an entity health check in-house. However, you would need to be confident that you understand the requirements in each jurisdiction where your business operates. 

This would entail knowing where and how to get confirmation from local authorities that your business is fully compliant, and if there are any updated rules or regulations that need your immediate attention. In some jurisdictions you will also need to visit government offices in-person and request specific files to complete required documents. So the clear downside here is that this will often become an extremely time-consuming process. And once your business operates in five or more jurisdictions, the requirements to carry out entity health checks becomes even more challenging. 

This is when an experienced and local service provider, with extensive knowledge of a jurisdiction and its business rules can be of major benefit.

If you’re unsure where to begin, TMF Group is on hand to help your business, offering frequent entity health checks that will keep your business compliant, all year round. 

We’re a global leader in global entity management and related services. We have a presence in 87 countries, with more than 11,000 experts spread around the globe. Wherever you operate, our professionals speak the language, know the local business culture and can help you to navigate any number of compliance matters.

We also provide a full suite of accounting and tax, and HR and payroll services, to help keep your entity in good standing throughout its lifecycle - from incorporation to dissolution. 

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