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What Are Entity Health Checks and Why Are They Important

Entity health checks involve independent contractors auditing a company's accounting and legal compliance by investigating possible issues. They examine tax filings, licenses, and corporate documents to check the company's status with government institutions. Entity health checks are important to avoid penalties from authorities for any oversight of compliance regulations, which can be easy to miss. They benefit companies in several ways, including demonstrating good governance, mitigating risks, and preventing wasted time and money dealing with penalties. Using a local expert familiar with each country's complex compliance systems is advised, especially in countries like Brazil and Argentina.

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56 views3 pages

What Are Entity Health Checks and Why Are They Important

Entity health checks involve independent contractors auditing a company's accounting and legal compliance by investigating possible issues. They examine tax filings, licenses, and corporate documents to check the company's status with government institutions. Entity health checks are important to avoid penalties from authorities for any oversight of compliance regulations, which can be easy to miss. They benefit companies in several ways, including demonstrating good governance, mitigating risks, and preventing wasted time and money dealing with penalties. Using a local expert familiar with each country's complex compliance systems is advised, especially in countries like Brazil and Argentina.

Uploaded by

rdiazepla
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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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 are entity health checks?


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 Entity health checks involve opening the
actions and activities are clean. In a minefield of company up to investigate possible
legal and accountancy regulations, it is very easy compliance issues.
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.

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
An entity health check can uncover all legal background, both parties can come to a fair
the financial details underneath the and reasoned agreement. Particularly in the case
surface of a company. 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.

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

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.
Penalties take time and effort to address,
Some of the largest multinational companies in the particularly in the cases involving the
world go through health checks every financial court.
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.

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