Navigating global entity management pitfalls

By Lisa Wilcox, Market Head, North America, TMF Group

A hidden hazard, or an unapparent source of danger or difficulty – that is the definition of a pitfall.

When running a multinational business, there are many pitfalls to consider. Especially when it comes to global entity management. Transnational regulatory reach, local jurisdictional complexity and the risk of non-compliance pose fundamental and ever-increasing challenges for international businesses pursuing commercial opportunities abroad.

Here, we look at how opening a bank account abroad can throw a spanner in the works and significantly delay incorporation. We also examine how to keep your existing entities in good shape, and finally, how broken internal processes can cause major upheaval.

Keeping on top of the little things – opening a bank account
Often, delays to setting up and getting ready to do business in a country may not stem from rules laid down by its government as one would think, but rather from private sector bodies such as banks. In many jurisdictions, banks are highly regulated, and undertake substantial checks before setting up entities with corporate bank accounts, particularly for those arriving from foreign shores.

On average globally, setting up a bank account from abroad actually takes longer than the incorporation process itself. In some jurisdictions, there are vastly different timeframes for incorporation and opening a bank account. For example, in Malta, Hong Kong and the Netherlands, incorporation is typically achievable within a week, while opening a bank account from abroad takes more than six months.

TMF Group’s annual Global Business Complexity Index  explores the factors that drive the success or failure of international business expansion, including details about opening up bank accounts across the 77 jurisdictions the report covers.

The quickest turnaround for setting up a bank account is two to three weeks; this is the case for 16% of those jurisdictions researched in the GBCI. In most jurisdictions – 41% – it takes about a month.

However, it can take significantly longer. In 28% of the jurisdictions researched, opening a bank account takes two to three months. And in respectively 7% and 8% of the jurisdictions it can even take four to six, and more than six months.

This data shows that opening a bank account quickly should not be taken for granted, as part of getting an entity set up and operationally ready. The best piece of advice we can give to those opening a bank account for a new entity abroad would be to start the process sooner rather than later.

Businesses must also avoid the pitfall of assuming that processes will be the same or even similar in different jurisdictions. There are a multitude of hoops you have to jump through, and they can vary greatly from jurisdiction to jurisdiction.

It’s often the little things that can have a big impact and cause delays. In order to open a bank account in the US, for example, you need a tax ID; it’s not necessarily troublesome to obtain one of these, but you must have it before you can start conversations with a bank to open up an account.

The doctor will see you now – performing an entity health check
In this rapidly evolving regulatory environment, it’s important to know that your entities are in good standing. Good practice is to review the status of all your entities at least once a year. While it sounds like an easy thing to do, in reality it can be difficult and can require in-country support to undertake properly.

An entity health check  should cover some of the entity basics, such as its name, registration number, date of incorporation, trading status, registered address and main business address. Additionally, it should extend to information regarding shares (types, numbers, values, capital), shareholders, financial statements (filings, year-end reporting, deadlines, last date filed), board meetings, directors and officers and any powers of attorney.

A company can conduct an external check with local authorities such as the local chamber of commerce, depending on the jurisdiction, to see if all documents are filed and directors, board meetings, addresses and so forth, are all current. Internally, the company can check with the relevant stakeholders in tax, legal and finance, to see if all necessary actions have been completed.

If it’s broke, fix it – internal processes
Performing a health check on your entities is one thing, but at the same time attention needs to be paid to your internal processes to see how well those are functioning.

We have a tendency to be too forgiving, or even negligent, when it comes to broken internal processes for compliance and entity management. By the time any dysfunction starts to become apparent, it’s too late.

Some clear signs that your processes are broken include:

  1. Company accounts are being filed late

We all know that mistakes happen, and unexpected circumstances can lead to deadlines being missed. But your paperwork being chronically late is a clear indication your existing processes are due for an overhaul.

  1. Regulators at the gate

Authorities conducting random checks and surprise audits should not ring any alarm bells. However, if you are receiving an unusually high level of correspondence from authorities in any particular jurisdiction requesting further information about your company’s activities, there’s a reasonable chance that something is wrong.

  1. Receiving fines for non-compliance

If one – or more – of your entities is failing to meet regulations and you’re receiving penalties as a result, the writing really is on the wall and you need to act quickly to resolve your process issues.

Talk to us
Helping clients invest and operate safely around the world is what we do on a daily basis.

Our combination of global reach, local knowledge and multi-disciplinary expertise is your answer to navigating the pitfalls of cross-border entity management

If you need support or assistance with incorporation overseas, including opening a bank account, performing an entity health check, or auditing internal processes, talk to us today.

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