Why In-House Departments Should Digitally Transform Legal Entity Compliance
Over the past decade, the expression “digital transformation” has become something of a buzzword – but the concept isn’t passe: an overwhelming majority of business leaders say digitalization is one of their organization’s top priorities, year after year.
It’s a good instinct. A recent McKinsey study found that digitalization drives value. The findings, which were published in Harvard Business Review, concluded that “digital leaders are creating much more shareholder value than laggards” and that digital leaders are better able to “[grow] revenue and [contain] expense growth” than their laggard peers.
When it comes to the departments within organizations that are most likely to embrace digital transformation, in-house legal teams are generally late adopters. A 2022 Association of Corporate Counsel (ACC) report about trends in legal transformation and technology found that 70% of in-house legal departments “experienced little to no investment in transformational initiatives over the past two years.”
Despite this, the majority of in-house teams understand the value of digitalization. 78% of in-house counsel respondents to a 2023 ACC legal technology report said they consider technology a “must-have.” The disconnect between the perceived value of technology and low levels of investment can be attributed to several factors – budgetary constraints and an overall lack of buy-in among them. Another prominent barrier is confusion – over what digital transformation entails, which in-house teams can benefit, and how and where to get started.
Digital Transformation for In-House Legal Departments
What Digital Transformation Entails
“Digital transformation” can mean different things to different people, but the general consensus is that digital transformation extends beyond the adoption of one-off technology solutions. Instead, it is driven by strategy: for a process to be digitally transformed, it must be restructured with technology at its core.
Who Digital Transformation Is For
The 2022 ACC report cited above found that only 21% of small companies (under $1 billion) and 29% of medium companies ($1 billion to under $10 billion) have dedicated either “some” or a “substantial amount” of investment to digital transformation (compared to 66% of enterprise organizations). Many believe that only enterprise organizations have the resources to invest in and derive value from digital transformation.
This perception is misconceived. Digitally transformed legal processes can drive value at organizations of any size – and they don’t necessarily need to come at a high cost. In fact, the right solution can deliver a substantial ROI.
How to Get Started
Many functions in-house departments oversee may be digitally transformed. The decision about whether to prioritize an investment in technology that digitalizes contract management, matter management, e-discovery, legal entity compliance, or something else can be overwhelming.
In-house departments that are at a loss for where to begin should consider which process (or processes) would, if digitalized:
- Reduce the greatest amount of grunt work
- Reduce time and opportunity loss
- Reduce risk
- Reduce cost (and eliminate unnecessary expenditures)
- Increase transparency
- Foster increased collaboration
Entity Compliance: A Prime Candidate for Digital Transformation
While each in-house team will have its own priorities when it comes to digital transformation, legal entity compliance is a savvy place to start for many.
Among the responsibilities in-house departments typically oversee, entity management is a noteworthily time-consuming task. The work itself requires relatively little specialized knowledge, and it pulls counsel away from high-level, valuable work. But, despite the tedium of the work, a lot can go wrong if entities are non-compliant: fines and fees may accumulate, an organization’s reputation may be damaged, and deals may be halted. In short, it’s a process well-suited for digitalization.
When entity compliance is digitally transformed, it is far easier to maintain compliance and contain risk. In-house departments with a digitalized entity management process save money related to non-compliance and recoup a significant portion of time that was formerly lost to spreadsheets.
Evergreen benefits aside, now is a particularly good time for the process to be digitalized. The Corporate Transparency Act (CTA) took effect on January 1 of this year and many companies will need to report their information to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) by January 1, 2025. Failure to comply with the Act can result in a fine of up to $10,000, so organizations would be wise to reassess the efficacy of their approach to entity compliance in the coming months.
How to Digitally Transform Entity Compliance
A few solutions exist for organizations looking to digitally transform entity compliance, including:
- Digital registered agents (RAs)
- Entity management software
- Entity management software with a service component
Of these options, software that automates entity compliance and also includes a strong service component is the most reliable and transformative. Digital registered agents – often relatively low-tech generalists who offer limited transparency – have spotty track records when it comes to maintaining compliance. Software solutions that aren’t supported by service sometimes fail to keep organizations compliant because they typically only send automated reminders when filings are due – but don’t actually do the work.
Filejet is an entity management solution that offers a unique blend of service and software that automates U.S. and international annual report, business registration and DBA filings, and serves as a digital registered agent. The cloud-based platform is transparent, collaborative, and offers a full suite of transactional services – all backed by concierge-level service. It’s the digitalized entity compliance solution organizations don’t need to think about – unless they want to.
