Legal entity management and corporate growth

Organic business growth and LEM

Organic business growth can take many forms, such as geographic expansion, both within a country’s borders as well as internationally; the introduction of new products or services that are outgrowths of those already in existence; and diversification into related industries. As you define your future, it is critical to recognize the connection between entity management and corporate growth strategies in both the oversight of existing legal entities and the formation and maintenance of new entities. In some cases, existing legal entities may be adequate to support and facilitate growth; in others, it may be desirable to form new entities.

Once a decision is made to form one or more new entities, additional considerations arise, such as selecting the name, directors, and officers of each entity, the jurisdiction in which it is organized, and the type of entity to be created, as well as obtaining and maintaining necessary business licenses, such as licenses required to take on employees, and developing and implementing processes to maintain each entity’s compliance and good standing. These considerations suggest that legal, compliance, and other support teams need to be involved at an early stage so that each new entity is able to “stand up” in a timely manner.

Similar factors need to be considered and addressed where geographic expansion is undertaken, but new geographies may require additional attention—particularly when expansion involves entering a new country or global region. In those cases, different laws or entire legal systems may apply, and different business and/or general cultures may lead to different outcomes. To navigate the complexities in the local regulatory environments in which an organization operates in, inclusive of jurisdictional compliance, organizations are often turning to global service providers.

Inorganic business growth and LEM

Many of the challenges outlined above apply to M&A and other forms of inorganic growth. However, when a company is contemplating an acquisition—even a relatively small one—additional questions related to their legal entity management may emerge. Moreover, in situations where a company does not routinely engage in acquisition activity, the transaction itself can be extremely disruptive, thus complicating the mix of facts.

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