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When you go about company formation in any jurisdiction, the procedures you undergo don’t stop once you acquire your company licence. You must consider (based on your jurisdiction) what to do to ensure you maintain your favourable status. What are the ongoing corporate governance and compliance components you can’t afford to ignore? We have all the details.

But first, what is corporate governance?

Corporate governance refers to the framework an entity employs to direct and control all the moving parts. This system includes the necessary processes, norms, and regulations a firm needs to accomplish its business goals while balancing internal and external stakeholders’ needs. Beyond this definition, how does this work in practice? The primary organism in charge of driving this structure is its board of directors because they are responsible for putting parametres around how a company behaves. 

Why does good corporate governance matter?

When we think about the criteria investors use to decide the merits of a company, the truth is that it’s not only about profits. Investors look more favourably at firms with effective corporate governance as a sign of their integrity and direction. If you benefit from corporate governance that fosters trust, you have more potential to forge long-term investment opportunities and thereby cultivate the conditions for long-term financial liability. 

What corporate governance issues can arise if you don’t have appropriate standards? Inadequate corporate governance can lead to scandals like Volkswagen’s “Dieselgate” or fraudulent practices at firms like Enron that led to their demise. While these examples are extreme, other inadequate principles lead to other detrimental behaviours that could have dire consequences. While your board is the motor driving your corporate governance principles, any deficiencies in your board could also backfire on your mission to opt for high corporate governance. 

Corporate Governance: Ensuring a structure with best practices

What constitutes good corporate governance? Inevitably, as with company formation, it often depends on the jurisdiction. In the case of the UAE, many laws provide minimum corporate governance standards. These rules depend on factors such as the type of entity (if it’s a Free Zone or Mainland company) and the industry (since specific sectors have differing rules). Three significant regulatory measures are covering particular cases. There’s the Central Bank of the UAE’s Corporate Governance Regulations and Standards that sought to standardise it across the bank sector, the Securities & Commodities Authority’s Decision no. (3/Chairman) of 2020 guiding Joint Stock companies and a 2020 decision from the UAE cabinet about the corporate governance system for Federal Government Boards. 

While the local peculiarities may appear frustrating, international organisms work to promote more robust, standardised regulations worldwide. The International Corporate Governance Network, founded in 1995, is an investor-led group that seeks to promote corporate governance standards that contribute to sustainable economies and market efficiency. Its membership roster includes professionals for 45 countries (mainly in Europe and the US with the American counterpart being the Society for Corporate Governance). The group often is invited to assist in raising global corporate governance standards. 

The Organisation for Economic Cooperation and Development (OECD) has had Principles of Corporate Governance of OECD and G20 countries since 1999, with the most recently-updated version receiving endorsements from the G20 Leaders Summit and OECD Council. The principles sought to aid governments in boosting their policies in this realm. 

So, what corporate governance principles can help me fulfil my compliance obligation?

Regardless of where you choose to incorporate, we recommend you address a few baseline components. Focusing on these pillars will offer you the foundation to create corporate governance with transparency, fairness, accountability, and responsibility for long-term viability. 

Proper accounting and auditing

Cooking the books or not completing your audited statements in the right way can lead to non-compliance, and through that, a recipe for trouble for your entity. Enlisting an accountant and auditor that meets your entity’s needs and has the expertise in the jurisdictions you impact is crucial. It’s always better to hire expert accountants to complete your statutory financial statements the right way rather than doing them yourself and getting it disastrously wrong. When you do business in multiple countries, the complexity surrounding financial and tax reporting increases.

Not only do internationally-mobile professionals and business owners like you have to file your tax documents in the jurisdiction of incorporation, but your home country may also require additional disclosures if you’re living or working abroad. If you’re a US citizen or permanent resident, you’ll have to comply with FATCA. The same goes if your country of citizenship is a CFRS jurisdiction. If word gets out about improper auditing, investors may think you don’t know how to get things done, even if it’s a rookie mistake.

You’ll also want to pay attention to local regulations, such as the UAE’s Economic Substance Regulations (ESR) and beneficial ownership declarations around the world. The UAE recently amended their requirements, and we’re ensuring that our UAE-based clients seamlessly adapt to the new rules. 

Structure your board to avoid any issues

Since your Board of Directors proves crucial in your long-term direction, the structure for your board plays vital in accomplishing what you would like. If your board structure makes it hard to remove an incumbent that doesn’t fulfil their role, that’s not good governance. Fortunately, company formation experts like our team at Europe Emirates Group have the insight you need to shore up yours.

Find an expert Corporate Secretary

Suppose non-compliance is a significant concern because you would instead focus on running your business than the due-diligence and paperwork. In that case, a qualified Secretary and their services can do just that. They will update and maintain your records, handle any routine changes and remind you when it’s almost time to complete and submit any accounting. Our secretarial services ensure proper legal and financial compliance in your chosen jurisdiction. 

Are you looking to resolve or prevent corporate governance issues?

If you’re looking to shore up your firm’s corporate governance apparatus, our team at Europe Emirates Group has everything you need. Whether it’s a Secretary, assistance in preparing your financial documents or determining how to best structure your board, we collaborate with all our clients to craft tailor-made solutions that maintain business ethics while achieving your enterprise goals. Would you like to learn more? Don’t hesitate to contact us today. 

Written by
Adrian Oton

CEO, Europe Emirates Group