How Entity Management Software Improves Corporate Transparency

The regulatory compliance landscape is constantly changing. Governments enact new policies and regulations to modernize compliance standards, increase corporate transparency, and protect the rights of citizens.

For example, the Corporate Transparency Act was enacted on January 1, 2024, requiring qualifying business entities to submit diligent beneficial ownership information (BOI) reports to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN).

Additionally, cyber compliance laws enforce strict information security and data privacy standards. Companies must invest in protecting sensitive data and prohibit data security breaches so compliance is maintained.

So what are some ways to adapt to regulatory compliance changes? How do you keep your business on the right side of compliance law?

MinuteBox helps entities monitor regulatory compliance

Traditional regulatory corporate compliance was a tedious process. Legal and compliance departments were forced to dedicate countless hours to rigorous data entry to create compliant entity management.

Solutions like MinuteBox provide modern and more efficient workflows to maintain regulatory compliance. The platform includes templates and guided widgets that inform legal and compliance teams of the exact data required to complete minute book records.

Gone are the days of cycling through countless records to find accurate reporting data. MinuteBox’s intuitive system converts entity management data into structured PDF files identical to standard minute book records.

If there are gaps in the reporting data, the platform prompts your team if there is any missing data. As a result, your legal and compliance managers know exactly what data is necessary to complete the records and maintain compliance. It’s a fast, easy, and efficient workflow!

5 MinuteBox strategies to maintain compliance

Thousands of law firms and corporate counsel departments trust MinuteBox to monitor annual compliance. The platform saves valuable time implementing legal entity management structures and automating compliance solutions within a secure cloud-based solution.

These are five excellent strategies to use MinuteBox and maintain regulatory compliance.

Centralize your records and assess the effects of new regulations

Entity management software functions as a single source of truth for regulatory compliance. All reporting entity data is centralized in one system, which makes it easy for your legal and compliance teams to review the accuracy of reported data.

When new regulations pass into law — such as the Corporate Transparency Act — simply open your MinuteBox registry and evaluate which entities or subsidiaries are impacted by the new regulation.

Your legal and compliance teams can enact a proactive workflow to gather any new reporting data and align with the new requirements. It allows your teams to work more efficiently and productively without excessive new time-consuming or financial costs to the business.

Use effective collaboration tools to ensure timely stakeholder engagement

If new laws require additional reporting information, that data must be found, secured, and inputted into your minute book reporting records. Some of that information can only be provided by specific stakeholders within the corporation. Engaging those stakeholders and ensuring their collaboration can be very time-consuming without collaborative solutions.

Thankfully, MinuteBox has built-in collaboration features that simplify the workflow. The platform enables real-time collaboration so that you can work with your colleagues to update all necessary reporting data.

Best of all, you can tag any stakeholder whose name is attached to your organizational charts. They’ll receive a notification from the MinuteBox platform that their assistance is required to complete a regulatory compliance task. All communication occurs within the platform so your teams can submit filings by the appropriate deadlines.

Enhance data governance to improve organizational decision-making

As stakeholders provide reporting data, they may ask reasonable questions about the compliance records. The organization may have to make crucial decisions about enhancing current regulatory compliance processes. To do so, they require advanced reports.

Advanced Reporting by MinuteBox offers unparalleled reporting capabilities. Customizable reports can be generated for thousands of entities or subsidiaries under your corporate umbrella. Once again, all reported data is shareable with all key stakeholders directly within the MinuteBox platform.

Suppose certain entities or subsidiaries pose greater liabilities to the corporation than they’re worth. With MinuteBox’s Advanced Reporting, you can quickly determine which entities pose more risk than reward so that decisions can be made about the future of those operations.

Bring efficiencies into all regulatory compliance processes

As a business, part of the operating mandate is to find new efficiencies to streamline operations. Compliance protocols are often tedious and time-consuming, but they are necessary to protect the organization. Nevertheless, there are always ways to make the compliance reporting process more efficient.

Perhaps one of MinuteBox’s greatest benefits is the time-saving efficiencies it delivers to regulatory compliance workflows. The intuitive nature of the platform, coupled with the guided widgets and pre-built templates of minute book records, makes it quick and easy for your legal and compliance teams to generate detailed compliance reports.

Compliance reports are mandatory requirements, but they can be completed faster and easier with modern technology. Speed, precision, and efficiency are all available when entities use solutions like MinuteBox to implement proficient regulatory compliance workflows.

Create organizational transparency while guaranteeing data security

Remember that cybersecurity matters are a growing concern for all corporate entities, so it’s important to use compliance reporting solutions that guarantee data integrity and security.

MinuteBox is the only entity management platform to receive both ISO 27001 and SOC 2 Type II certifications. These certifications demonstrate MinuteBox’s commitment to upholding the highest possible data security and information management standards.

The platform uses biometric and hardware key authentication to restrict access to entity management records. Multiple stakeholders are involved in the compliance reporting process, and maintaining all compliance data within the MinuteBox platform gives qualified stakeholders access to corporate records while ensuring no data is breached or compromised.

Are you ready to modernize regulatory compliance reporting with the best entity management solutions on the market? Join the MinuteBox revolution today and remain one step ahead of all adaptive regulatory compliance protocols.

In early March 2023, the US Department of Justice quietly updated its Evaluation of Corporate Compliance Programs (ECCP). The new updates amend previous announcements revealed in the fall of 2022 by Deputy Attorney General Lisa Monaco.

The ECCP guidance outlines how prosecutors evaluate a business entity’s adherence to a corporate compliance program. Corporate counsel representing the interests of large business entities, and their corresponding subsidiaries, can use the ECCP guidance to strengthen the standards of their own corporate compliance policies for their respective organizations.

What are the new ECCP guidelines?

The purpose of the ECCP is to help DOJ prosecutors enforce standardized corporate compliance policies among business entities across the United States. The guidelines help prosecutors determine the effectiveness of an entity’s corporate compliance program, and evaluate how adequately the program is applied.

Strict policies related to compensation and compliance

The most notable updates to the ECCP guidance are in regards to executive compensation and consequence management policies. According to an analysis submitted by Ankura Consulting Group to Lexology, there are four new guidelines related to compensation that prosecutors will consider when evaluating an entity’s corporate compliance policies.

1. How effectively is an entity tracking disciplinary action data for malfeasance?
2. Is compensation ever used as an incentive for adherence to corporate compliance?
3. Are compensation packages recouped as a consequence for compliance violations?
4. Does compliance influence career planning and promotion evaluations?

Corporate communication compliance for all communication channels

The second biggest change to the ECCP guidance relates to how executives and employees of a business entity issue communications. Most businesses have HR policies that offer broad guidance on what is and is not permissible to communicate, which the DOJ reviews if an entity is ever subjected to audits or criminal investigations.

Under the new ECCP guidance, those reviews will now include evaluating corporate policies on communicating via personal messaging applications. The ECCP emphasizes that any and all communications regarding corporate business must be part of a compliance risk management program, including communications issued outside of official company channels.

Entity management software helps enforce compliance

Compensation and communications are two important aspects of a corporate compliance policy. Enforcing the standards of the policy is an important part of the job of any in-house corporate counselor. The question for in-house counsel becomes: what is the best approach to enforce corporate compliance?

Entity management software is one of the best resources for business entities to adhere to their corporate compliance policies. Entity management software is a modernized approach to minute book management, enabling counsel to add new records to corporate documentation in a matter of seconds.

Suppose a round of bonuses is to be issued to various corporate managers and directors. Using entity management software, counsel can provide detailed accounts of the value of the compensation, when it was distributed, how it was distributed, and even into which account it was administered.

All those records are protected in secure cloud storage backed by biometric and hardware key authentication, ensuring all information remains secure and confidential. If federal or state auditors have questions about the compensation packages, your legal team can simply pull up the records in the account and provide a transparent summary of how compensation was issued. This is one of the many perks of secure cloud storage of business entity information.

Expect stricter enforcement of corporate compliance in 2023

The move by the ECCP to provide more guidance around corporate compliance shouldn’t come as a surprise. In recent months, several high profile businesses have been exposed for failing to uphold proper corporate compliance policies that are resulting in significant personal, financial, and criminal penalties.

In November 2022, the collapse of cryptocurrency exchange FTX highlighted the consequences of companies that lack proper organizational structure. Former FTX CEO Sam Bankman-Fried faces multiple charges related to fraud that could result in years of imprisonment for the 31-year-old former executive.

SBF’s misappropriation of customer funds to finance his trading firm, Alameda Research, lies at the heart of charges brought against him. Regulators have identified a lapse in organizational oversight at FTX, including the fact there was no CFO in place to properly manage the flow of cash in and out of the company.
More recently, the collapse and insolvency of Silicon Valley Bank risks exposing another case of financial mismanagement. In the aftermath of federal regulators seizing control of the company, they determined that SVB lacked a Chief Risk Officer to oversee risk management policies. Authorities believe that a Chief Risk Officer would have objected and prevented questionable moves by the CEO and CFO to sell millions of dollars in stock only weeks before the collapse. Those former executives are now being investigated for violating insider trading policies.

The Corporate Transparency Act (CTA) is part of US federal legislation that outlines how corporations, limited liability corporations, and other legal entities are required to report information about their beneficial owners. The law is enforced by the US Treasury’s Financial Crimes Enforcement Network (FinCEN) as part of a broad government effort to crack down on illicit financing and enhance corporate transparency.

Compliance with the CTA is mandatory for corporations subject to the terms of the law. Failure to comply with the act will result in steep penalties. Deliberate false reporting or fraudulent activity can result in fines of up to $10,000 to the owners of the corporation, and the possibility for two years of incarceration in federal prison. The CTA does allow penalties on false or misleading statements to be corrected if the controller who submitted the initial reports files a supplementary amendment within 90 days.

FTX: a case of corporate transparency gone wrong

Before diving into the specifics of entity corporate compliance, let’s first pull the bad apple out of the bunch. Here’s an example of how not to comply with the laws and risk financial bankruptcy.

FTX is a cryptocurrency trading firm that made recent headlines for mismanagement of their corporate finances. FTX founder and former CEO Sam Bankman-Fried triggered a global cryptocurrency crisis when it was discovered that customer funds had been misappropriated by funneling up to $4 billion of customer purchases into self-directed entities, operating in conjunction with FTX. Bankman-Fried’s alleged intent was to rescue his established trading firm, Alameda Research, from collapse amid higher costs imposed by rising interest rates.

Bankman-Fried was forced to step down from the company in November 2022, and John Ray III was appointed the new CEO of FTX in the wake of the company’s filing for Chapter 11. In a submission to a federal bankruptcy court, the new CEO described FDX’s corporate controls as “a complete failure.”

According to the information provided to the courts, FTX had 30-40 self-directed entities operating under FTX Group. The corporation is officially headquartered in the Bahamas and registered to conduct business in the United States.

However, many of the self-directed entities, particularly those in the Bahamas and other Caribbean countries, had no corporate governance or entity management in place. Some of the entities never established a Board of Directors, and they never had an official board or shareholder meeting. As a result, the lack of corporate structure created problems when due diligence was conducted by rival crypto exchange firm Binance, which intended to purchase FTX before discovering the extent of corporate malfeasance that occurred under Bankman-Fried’s tenure with the company.

What you need to know about complying with FinCEN

The FTX scandal has shed greater light on the need for corporate transparency and accountability across all sectors of the economy. Investors are entitled to know the truth about a corporation’s financial performance, and the purpose of legislation like the Corporate Transparency Act is to hold these corporations accountable.

Corporations designated as “reporting companies” under the CTA are bound by the legislation. A reporting company is a corporation, limited liability corporation, or other legal entity that has filed a corporate charter with the Secretary of State.

A corporate charter is part of the incorporation process in the United States, which describes how government regulators can contact representatives or shareholders of the corporation. Foreign-based corporations must also file a corporate charter to legally conduct business in the United States.

The purpose of transparency for reporting companies

The federal government enacted the CTA to crack down on corporate fraud, money laundering, and other financial crimes that cost the United States millions in lost tax revenue. The directive for FinCEN is to hold reporting companies accountable.

There’s also a practical business case for each reporting entity to comply with the mandate, aside from the fact that it is enforceable law with significant penalties for violating those laws. Corporate transparency reports submitted to federal regulators include structured organizational charts that illustrate the hierarchy of ownership and responsibility for the corporation.

These organizational charts allow corporations with sub-entities or complex corporate structures to provide a transparent representation for accountability. Org. charts expedite decision making by showcasing which parties are ultimately responsible for calling the shots.

Who is a “beneficial owner?”

Under the CTA, a beneficial owner is defined as any individual who has a legally binding contract to exercise substantial control over the corporation, or is recognized as a shareholder with no less than 25 percent of issued shares.

Proxies who act on behalf of shareholders are not recognized as beneficial owners of a corporation. Creditors owed debts from the company, as well as employees with small percentages of ownership in the corporation are also exempt from the terms of the CTA.

What information must be reported to FinCEN?

Unless special exemptions are administered to a corporation, the company must submit a detailed report to the Director of FinCEN. The report will contain personal information about each beneficial owner in the corporation, which includes:

1. The full legal name of the beneficial owner
2. Their recognized date of birth
3. Current residential address and the address of their business (if separate from the residential address)
4. Identification number from a document issued by a state or local government, such as a passport number, driver’s license number, etc.

The information supplied to FinCEN must be current and accurate. If personal information about any beneficial owner changes, the corporation is legally required to submit a supplementary report with the updated information no later than one year after the changes have been made.

How subsidiary management software helps corporations avoid repeating the FTX scandal

Subsidiary management software assists corporations with financial transparency, organizational structuring, and minute book management. Corporations that use subsidiary management software maintain accurate and diligent records, enabling accurate reporting to FinCEN with no hassle.

With subsidiary management software, corporations can document exactly where they’re domiciled in the US, or in a foreign country. If the entity is foreign-based, filings that document the corporation’s right to conduct business in the United States are easily accessible.

Subsidiary management software includes built-in organizational chart templates that can be populated with the names and titles of beneficial owners. The platform also includes templates for documenting Boards of Directors, corporate committees, and even shareholder ledgers to document the issuance and transfer of shares among beneficial owners.

One of the contributions to the FTX scandal was that no due diligence had been conducted on the investors who became beneficial owners in the corporation. The lack of corporate governance and org. charts meant that venture capitalists would make investments without accountable oversight of the other investors. The lack of transparency meant the cash flow in the company was never fully reported.

Subsidiary management software prevents other corporations from falling into the FTX trap. All monetary transactions are recorded in diligent corporate records. Investors and other venture capitalists are recorded as beneficial owners of the corporation, allowing the company to remain transparent and accountable with federal regulators.

Can your corporation benefit from subsidiary management software? Join the MinuteBox revolution for a modernized approach to corporate governance and transparency that will keep federal regulators well-informed and out of your business.