Kezia Farnham

Senior Manager

Entity organizational charts (with examples)

Those outside the legal, compliance and operations teams hear the words 'organizational chart’ or ‘entity structure chart’ and immediately think of a flat, hierarchical diagram showing who reports to whom regarding management. But there is a whole other side to these terms in business, one that seeks to bring life to all the dotted lines and ownership relationships within an entire company structure.

Organizational charts for business, when done well, can help guide the big decisions in business, such as what impact a merger will have on tax liabilities or regulatory compliance in a certain jurisdiction or where there may be worries over shareholder dominance within the whole structure. They can help to clarify management structure, increase operating efficiency and facilitate future planning.

This article will help you create entity structure charts that work by explaining:

• What entity structure charts (also called entity organizational charts) are and what they include
• Common types of organizational charts
• Examples of ways to use org charts
• How to create an entity org chart for your business

What is an entity structure chart?

An entity structure chart, often called an entity relationship diagram (ERD) or a business entity chart (BEC), presents a general, at-a-glance overview of the relationship between the legal entities of an enterprise. These relationships can be wide-ranging but, for the chart, typically include ownership, management and governance.

Done well, org charts illustrate complex and fragmented relationships in a way that boards and senior management can understand and base decisions on. Your entire enterprise becomes accessible and digestible through organizational charts for business.

Types of entity structure charts

Organizational charts reflect the structure of the organizations that create them, meaning each chart can be unique. That said, there are five types of charts common across most entities:

1. Hierarchal entity structure chart: This is the most common chart and depicts a top-down structure beginning with top-level executives and trickling down to front-line employees. The idea is to illustrate the organization’s lines of authority.
2. Matrix entity structure chart: Some organizations are vertical and horizontal, meaning employees report to different managers depending on the project. Such organizations would use a matrix.
3. Functional entity structure chart: This chart visualizes the different functional areas — marketing, finance and operations, for example — to show how each department relates to the other.
4. Divisional entity structure chart: A divisional chart works for organizations where each division operates separately with distinct functions, resources and goals. In this case, the chart shows how each division connects with the central organization.
5. Flat organizational structure: Common in startups and small businesses, flat charts have fewer levels of hierarchy and more collaboration and flexibility between employees and teams.

What can you show in an organizational chart for business?

The potential of organizational charts for business is vast and only limited by the data you wish to reveal and the available data. For example, you could use an organizational chart to visualize the ownership structure of your company, the historical movements and developments or how the company is geographically spread out.

Using organizational charts for business, compliance teams and other interested parties can group different subsidiaries by function or reveal each entity's ownership structure in detail by factors such as shares held. They can also visualize entities across the group structure according to any data, including tax status, voting rights, shareholders, participation and interests, and more. It's limited only by the data you have available on each entity.

Examples of organizational charts for business

Let's take the ownership question as an example of organizational charts for business. Ownership of a business comes in many different formats, and an organizational chart can look at that ownership along economic- and shares-based lines or along geographical lines.

To chart that ownership, you need to capture ownership data from documents, focusing only on direct parent companies and subsidiaries. Below are two examples of organizational charts for businesses that show different ways to create an ownership chart.

Economic-based ownership examples of organizational charts for business

The first (example at the top of the article) digs into the ownership of a company structure from its parent company through all its subsidiaries. It uses diagramming shorthand, including colors, lines and shapes to show how the ownership flows through each relationship.

An economic-based ownership chart highlights each entity’s name, its location and the number of shares held in each entity by its parents. Shares are indicated by the number and type of shares (ordinary or special) and by a percentage along ownership lines.

Note that this entity relationship diagram also shows whether a company is incorporated in the UK or internationally, with the squares and rectangles indicating a UK company and the circles highlighting an entity incorporated outside UK jurisdictions. Using shapes and colors is an important part of making organizational charts for business so simple.

These ownership levels within a structure can be important, as they both highlight regulatory and compliance considerations — is an entity subject to UK regulation or not? — and showcase ownership percentages. The latter can help to make decisions around mergers and acquisitions or future buy/sell calls. By having this clear picture of ownership, boards and directors can make decisions based on real data, not on assumptions.

Geographic ownership examples of organizational charts for business

Not every decision made in business is based on economics, though, and it might be that the board wants to chart the geographical spread of its entities. Examples of organizational charts for business include non-economic-based ownership, too — or, to put it more simply, you can chart ownership based on jurisdiction and shareholdings.

In this example, the entity relationship diagram is for a holding company incorporated in the UK with multiple entities within its structure. These entities are based across Asia, North America, Africa, and several UK-incorporated entities.

This organizational chart for business will clearly show the percentage of shares the holding company owns in each entity — from 0%, denoted by a circle, to 100% of all shares. It uses colors to highlight the different countries in which these entities are incorporated, while direct lines show the relationship of each entity to its parents.

A chart such as this one can help boards to make growth decisions. Is there a country in which they wish to do more business? If there is already an entity based in that country, they will need to consider if a new entity must be incorporated or whether they will grow ownership or the size of the existing entity. Likewise, it can show the ownership level in each jurisdiction at a glance. This can be important for compliance — some countries restrict the levels of foreign ownership in local companies, so this kind of organizational chart for business can help compliance teams to identify any potential regulatory issues.

Why are entity structure charts important?

At their most basic, entity structure charts help leaders and owners understand how the entity functions. The benefits of that clarity are far-reaching and include:

1. Communication: Org charts facilitate effective communication by illustrating lines of authority, reporting relationships and communication channels. Employees will better understand who to report to and who to collaborate with.
2. Decision making: A clear picture of key decision-makers and stakeholders and how they relate to each other paves the way for effective decision-making. Leaders and owners can reach out directly to those in charge and be more decisive.
3. Resource allocation: Leaders can better allocate resources across departments when they understand the roles and responsibilities of each and what they need to optimize performance and productivity.
4. Legal and compliance: Entity structure charts are a regulatory requirement in some industries. By the same token, they can also help organizations determine which divisions or entities are subject to which regulations.
5. Entity strategy: Leaders can more effectively plan ahead when they understand the current structure. The chart becomes the baseline for evaluating changes and whether they align with strategic objectives.

How to create an entity org chart

When creating organizational charts for business, it's important to instill and retain consistency in the approach to diagramming. Without this, companies can find organizational charts that differ in style, shape and color, meaning it cannot compare like for like across time.

To create your own, you should:

1. Define your organization’s structure: The chart depicts your organization, so first, take time to collect information about it. Determine roles, departments, reporting relationships and key structures.
2. Select a chart type: Based on the information you collect, decide what type of org chart best fits your needs, whether hierarchical, matrix or something else.
3. Choose diagram elements: Think not just about how the diagram elements fit together, but what kinds of diagrams will accurately capture the information you need to convey. Elements such as color, text, line and shape are essential to this consistency. It's best to establish rules around handling these elements; as we saw in the examples of organizational charts for business, a specific color or style of the line could signify an ownership relationship, or a holding company may differ in shape compared to an operating entity.
4. Add leadership: Following your chosen style, next, add top-level leadership, including the C-suite and other senior managers. These will occupy the top slot in most org charts.
5. Integrate departments, positions and roles: Work from the leadership positions to arrange different divisions and functions, then add specific positions or roles. Ensure the relationship between each role and a relevant manager or supervisor is clear.
6. Share across the organization: Once finalized, share your chart with relevant stakeholders so they can understand and follow it. Common departments that benefit from org charts are HR personnel, leadership teams and often employees themselves.
7. Maintain and update: It’s possible and even likely that your entity structure chart will change over time. Regularly review and update the chart to ensure it reflects how you manage entities now — not how you did when you created the chart.
8. Use technology: Technology can help rein in personal preference and ensure all entity diagramming across a business is kept uniform in style and approach. Diligent Entities, part of the Diligent One Platform, is at the cutting edge of diagramming applications. It automatically creates best-in-class charts in a dynamic environment for presenting and analyzing data and delivering actionable intelligence.

Streamline your entity structure chart with technology

Entity structure charts don’t capture a moment in time. Instead, they’re a living document that should evolve with your organization and, sometimes, guide how that evolution happens. While manual charts can be the launchpad you need to formalize operations, most organizations eventually need to streamline their approach with technology.

Entity management technology quickly creates a single, audit-ready source of truth to highlight subsidiary-related information, such as ownership and structure, which can support effective decision-making. It also links that organizational chart to all available information, meaning your chart is not static — it puts all of the relevant information at the fingertips of the compliance, legal and operations teams around your business.

Schedule a demo to see how Diligent Entities and the Diligent One Platform can help you to create organizational charts for business, and instill uniformity and consistency in how you analyze your corporate structure.