Business leaders don’t typically extoll the virtues of following the rules. These days, the conversations you hear at conferences, networking events and around boardroom tables is about taking risks, embracing failure, thinking outside the box. As the old saying goes, “rules were made to be broken.”
But like it or not, the world of managing multiple legal entities comes with lots of rules — rules that need to be followed to avoid paying hefty fines or incurring the wrath of the Secretary of State (an office that wields more power than you might realize). It’s part of the process of keeping your organization in compliance and staying on the right side of the regulations that govern your legal entities.
The best way to do that? More rules.
Bear with us, here, because not all rules are created equal. External rules, the ones imposed by organizations like the IRS and the Secretary of State, are factors you can’t control. But internal rules are powerful tools that can shepherd your organization to compliance quickly, efficiently and consistently. They form the foundation of systems and processes that support your organization and help it withstand shifts, changes and unwelcome surprises.
Step #1: Understand the external rules
The road to compliance starts with a complete understanding of all the rules and regulations that pertain to your legal entities.
These can include tax filing deadlines, annual report deadlines, jurisdiction-specific requirements and international regulations. While you may have been hitting these deadlines consistently over the years, you may not be documenting them in one central location. And that’s the first step in creating systems to ensure your compliance track record stays intact.
If you’ve been housing this information within a spreadsheet (a stop gap that comes with its own particular pitfalls), or you’ve outsourced the deadline-monitoring process to a third party, like an attorney or accountant (which leaves you dependent on someone outside your organization to maintain your legal entity information), you may want to consider using a digital platform instead. It leaves considerably less room for human error and allows you to actively track and monitor the most important deadlines.
Step #2: Make some internal rules
Once you have your compliance data housed in one central location, look for patterns and consistencies. Are there particular times of year that are heavy on compliance? Are there deadlines that prove more challenging than others? Are there people or other factors who are holding up the compliance process in any particular area?
Having a 30,000-foot view of all the relevant compliance requirements you need to follow allows you spot areas of concern and opportunities for improvement. And that paves the way to implementing the kinds of rules that will streamline your compliance process moving forward.
Step #3: Design systems in a way that works for your organization
It’s true across all industries that what works for one organization doesn’t necessarily work for another. Even businesses with multiple factors in common can find that a system that works for one is useless for the other.
The bottom line is, your systems need to be designed for the particular needs of your organization. You do that by analyzing your data, your compliance needs and the capabilities of your team. Once you have all the information, you define your internal rules and educate your team on the new system you’ve put in place. Then, you test, refine and test again. Chances are, you won’t get it right straight out of the gate. But continuous improvement comes from constant analysis. That’s when your organization hits peak efficiency. And you’re effectively following all the rules — both internal and external.
Having your own rules for legal entity compliance can be easy to overlook as your business moves through the day to day — particularly if you’ve never gotten hit with a punishing tax penalty or had the Secretary of State take aim at one of your entities. You don’t know the pain of falling out of compliance, which makes the risks seem less intimidating. But we’ve talked with enough clients to know that falling out of compliance is not a place you want to be, if you can avoid it.
Our advice: Don’t learn this mistake firsthand. Put compliance high on your list of priorities. It’s important now, and it will become more so as your business acquires more legal entities. Trust us when we say that rules can be a good thing.
To learn more about how EntityKepper can help you implement systems and processes to streamline your compliance, click here to schedule a free demo.