Entity health check: Legal Compliance Requirements Legal Entity Australia

What are entity health checks and why are they important? 

As a general rule, Latin America has a highly regulated business environment. Laws, licenses, statutes, and directives litter the region’s business world, frequently providing headaches for business owners. Compliance is often one of the largest tasks a business faces when starting up, and unfortunately can be the undoing of a company, particularly for those with foreign backgrounds. 

However, Latin America’s various attractions such as tax incentives, low labor costs, and rapidly growing compound annual GDP rates are too appealing to ignore. To benefit from this business paradise and avoid compliance issues, entity health checks are the way forward. 

What is entity health check. Entoty health check definition.
Corporate health check: What are entity health checks? Bookkeeping health check. Corporate health check up

Corporate: What are entity health checks?

Entity health checks involve opening the company up to investigate possible compliance issues.

An Entity health check (also known as corporate health check) is an audit conducted by independent contractors who are employed to inspect accounting and legal compliance. Services of this kind consist of opening the company up to investigate possible compliance issues. These checks assess the business’ current status with all relevant government institutions.

By examining tax filings, social security payments, up to date licensing and general corporate housekeeping, a company can know if their actions and activities are clean. In a minefield of legal and accountancy regulations, it is very easy for companies to overlook or simply ignore compliance regulation.  

Entity health check types

To conduct a corporate health check, it is important to distinguish which type of check is required. There are two different types of corporate health check – a high-level corporate health check and an in-depth gap analysis. 

High-level corporate health check: This type of health check looks into a company’s three key areas of legal compliance: registry filings, minutes of meetings and statutory registers. Through an in-depth analysis of these documents, it becomes clear for the health checker to find legal compliance.

In-depth gap analysis: This health check looks more into finances and accounting. To ensure a company is maintaining good and proper accountancy practices, health checkers can dive into a company’s transactions and financial statements and find issues or gaps in their filings.

Of course, for the most thorough corporate health check, taking both a legal and financial approach to sweep the company’s information will provide the most conclusive and reliable result. 

Why are corporate health checks important?

To avoid being penalized by financial or legal authorities, independent reviews and health checks are advised. This is particularly the case for newer or foreign companies who are not yet familiar with local corporate law. Health checks are also advised if a major legislation reform has been recently put in place. Changes to corporate law can easily slip under the radar of business owners so to avoid penalties and fines, it is always advised to get a check.

Entity health checks have applications for all companies – large or small. However, generally, users of health checks follow three categories: 

1. Startups 

Startups are often faced with a number of challenges – employing a workforce, bringing in capital, conforming to compliance, as well as a range of other administrative tasks associated with opening a new business. Further added complications occur with foreign business startups. During this juggling act of tasks, it is very easy for compliance to be overlooked. This is where an entity health check provider could be useful pointing out gaps, whether it be fiscal or to do with licensing. Once the company is up and running, fewer of these checks will be required. 

An entity health check can uncover all the financial details underneath the surface of a company.

2. Mergers and Acquisitions

 Company buyouts are a warren for compliance traps. On the surface of a company, all can seem profitable, compliant and equitable; underneath, however, can be a string of debt and fines. Such issues are highly relevant when valuing a business, and without knowledge of these problems, a merger or acquisition could spell disaster for the buyer. Entity checks are common practice for mergers and acquisitions. By fully investigating a company’s financial books and legal background, both parties can come to a fair and reasoned agreement. Particularly in the case of Latin America where there are so many compliance regulations, a thorough investigation has to take place from a group of legal and accounting specialists. 

3. Branch offices of large corporations

Branch offices in foreign countries can be difficult to manage. Foreign branch offices often can easily fall into inattention. Issues such as time zones, foreign work cultures, as well as simply not having the time to constantly review your branchs’ performance, can mean the branch is unregulated. To ensure performance as well as compliance, independent entity health checkers can be employed to keep a watchful eye on the branch, acting as an overseer of operations. Though not always the fault of the company as a whole, due to responsibility always falling at the highest authority, large companies and their reputations can be damaged by the small branch incompliances. By looking after the specifics, companies can protect the bigger picture. 

Other benefits for your business

There is no doubt that the primary role of an entity health check is to ensure corporate compliance. However, health checks also have other benefits such as a demonstration of good governance and also risk mitigation. 

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Good governance

In medium-large companies, it can be difficult for management to keep an eye on everything going on. Particularly in the process of expanding a company, where the focus is placed elsewhere and business owners are looking to the future rather than the past, it is common for compliance to slip. The same can be said for companies with branch offices that have been neglected by management. By getting a health check on the company, the management team can ensure all is compliant as well as showing employees that their performance and actions are under review

Penalties take time and effort to address, particularly in the cases involving the court.

Risk mitigation

Corporate compliance penalties can come in a variety of forms. Some issues, if not serious, authorities penalize on a tiered warning system; others come as fines; whilst the most serious, if suspected criminal, can end in jail time. Whatever the gravity of the situation, the consequences of penalties are never only direct; they invariably stretch out and impact the business as a whole. Yes – a fine may only be a speed bump in the growth of the company but, a fine can contribute to a bad quarter or even a bad reputation. More importantly, however, penalties take time and effort to address, particularly in the cases involving the court. Health checks can prevent your company from wasting time and money on indirect consequences of a penalty and instead focus on achieving its objectives. 

Seek local expertise for your entity health check

Find experts on corporate health checks for Latin America. Generally speaking, Latin America has a rigorous corporate compliance system. According to reports, Brazil and Argentina fall into the bracket of the top 10 most complex countries for corporate compliance. Though both countries have developed and thriving economies, corporate compliance regulations are comprehensive and, if mishandled, penalties are rigorous. 

Some of the largest multinational companies in the world go through health checks every financial quarter to avoid the burden of compliance issues. Though small-medium sized businesses may not be able to afford this luxury, entity health checks are advised, at the least on a yearly basis. 

Biz Latin Hub specializes in business services, particularly for foreign companies. Our legal and accounting experts all across Latin America are trained in auditing and corporate health checking services. By partnering with one of our offices, we can ensure your company is compliant with local law.

Contact us today to discuss how we can support you.

Learn more about our team and expert authors.

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What is an Entity Health Check? Bookkeeping health check. Corporate health check up

The information provided here within should not be construed as formal guidance or advice. Please consult a professional for your specific situation. Information provided is for informative purposes only and may not capture all pertinent laws, standards, and best practices. The regulatory landscape is continually evolving; information mentioned may be outdated and/or could undergo changes. The interpretations presented are not official. Some sections are based on the interpretations or views of relevant authorities, but we cannot ensure that these perspectives will be supported in all professional settings.
Craig Dempsey
Craig Dempsey

Craig is a seasoned business professional in Latin America. He is the Managing Director and Co-Founder of the Biz Latin Hub Group that specializes in the provision market entry and back office services. Craig holds a degree in Mechanical Engineering, with honors and a Master's Degree in Project Management from the University of New South Wales. Craig is also an active board member on the Australian Colombian Business Council, and likewise also active with the Australian Latin American Business Council.

Craig is also a military veteran, having served in the Australian military on numerous overseas missions and also a former mining executive with experience in various overseas jurisdictions, including, Canada, Australia, Peru and Colombia.

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