Today, investment controlling is more than just the consolidation of subsidiaries in the consolidated balance sheet. It serves as a decision-making and management tool for company management and comprises the results-oriented planning, management and monitoring of company investments.
Complex tasks in legal entity management
legal entity management encompasses all strategic, operational and administrative tasks that a group of companies has to perform in the direct environment of its investments. This includes administrative, controlling and management tasks in three areas: fulfilling legal obligations (statutory reporting), supporting day-to-day work and value-oriented management of the investment portfolio. The importance of investment management is growing continuously, as the following diagram shows:
IT solution addresses problems with company data
Reliable data is essential in order to effectively solve legal entity management tasks. However, many companies struggle with incorrect and redundant data storage of shareholding information. The associated problems are addressed and solved in professional legal entity management through appropriate conceptual foundations:
- Optimized data collection: A clear assignment of areas of responsibility with sophisticated access control to the data with the help of a detailed authorization concept is of fundamental importance for data quality. This means that data changes can be assigned to a specific person or group of people. Decentralized data maintenance is supplemented by central release processes.
- Reference date and history: To ensure that the data is up to date, it is important for a company to provide information about the date of the change in addition to the actual data change. All entered or changed values must be saved with a reference date or a legal effective date. This is the only way to evaluate the data at specific points in time in the past, present or future.
- Legal form dependency: Different transactions are possible depending on the legal form: For example, new shares can of course only be issued and Supervisory Board and Management Board positions filled in the case of an AG. The reporting obligations also differ depending on the legal form.
- Uniform database: The overriding objective is to create a uniform data pool of all information relevant to a group of companies. Only through this "golden record", the one truth, can the rapid provision of qualitatively uniform data across departments be guaranteed.
Meeting compliance requirements
At the same time, the four principles help to improve compliance through checks on data consistency and the fulfillment of legal requirements and internal company guidelines and, overall, effectively support adherence to compliance, corporate governance code and internal guidelines.
For example, investment management deals with issues relating to the appointment of mandates, statutory reporting and the fulfillment of reporting obligations to supervisory authorities. Support in meeting current auditing and compliance standards on a non-statutory basis should also be anchored here. The following issues are relevant here:
- Which companies belong to the Group? Since when?
- How has the portfolio changed?
- Who is currently a mandate holder in which body - and for how long?
In dynamic corporate groups, these questions are not so easy to answer. With the help of legal entity management, complex corporate groups can be clearly presented. The systematic recording of all persons, mandate holders and legal entities provides a homogeneous pool of information that can be used in a variety of ways. Statutory reporting obligations can be fulfilled more easily, reliably and cost-effectively.
Fulfilling statutory reporting obligations - an example
Companies are subject to a number of statutory reporting obligations, for example under the Foreign Trade and Payments Ordinance, the Transparency Register, the Securities Trading Act or the various regulations relating to annual financial statements.
An organizational challenge for complexly structured groups of companies. The following example illustrates this using the notification in accordance with the Foreign Trade and Payments Ordinance.
The German Bundesbank requires statistical information from companies in accordance with the Foreign Trade and Payments Ordinance. One of the most important and time-consuming reports is the report in accordance with Section 64 AWV K3; it records the assets of resident companies (i.e. companies domiciled in Germany) in foreign economic areas. Statistical information on the amount and structure of German direct investment abroad is calculated on the basis of this report. The report must be submitted to the Bundesbank once a year. Companies have a deadline of up to six months after their balance sheet date (last working day). Resident companies and persons who directly or indirectly hold ten percent or more of the shares or control rights in a company abroad and the foreign company concerned has a balance sheet total of more than three million euros are required to report. Branches and permanent establishments abroad are also subject to the reporting obligation if the business assets exceed three million euros.
The notification places special demands on companies because it combines two separate types of information. The first sheet of the notification form contains a list of all non-resident companies with their registered office and country. This is therefore purely master data. On the second sheet, on the other hand, which in practice often comprises dozens of pages like the first, key financial figures must be reported. These are primarily individual balance sheet items that must be recorded for each non-resident company as well as for the directly and indirectly involved parties.
Preparing the report is very time-consuming for complex shareholding structures. It is often not easy to correctly and completely name the companies that meet the above criteria. Added to this is the difficulty of providing the required key figures in good time. Proceeding in accordance with the law and fulfilling the reporting obligation in full - at least in the case of globally active, interlinked companies - is not possible without appropriate IT support via a specialized legal entity management.
Read the related blog article "Statutory reporting in legal entity management - the goal is automation".
The following figure summarizes the benefits of professional and IT-supported legal entity management:
Software for legal entity management
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