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Keeping your Business Compliant

Business compliance refers to a company meeting its legal obligations, specifically to protect the company, employees, stakeholders, and customers. Examples of corporate compliance include ensuring customer privacy, obeying safety guidelines, handling payment of employee salaries, paying taxes, maintaining proper licensing, holding shareholder meetings, and complying with all local, state, and federal laws.

While compliance obligations equate to the laws and regulations governing a business, these rules vary based on the business location, business activities, entity type, and specific industry. There are several businesses in highly regulated industries, which tend to face very strict compliance requirements. These industries include health care/medical, financial, construction, energy, and transportation.

Compliance Requirements for LLCs and Corporations

Depending on your particular business structure, there are different compliance rules that must be followed. Below we highlight the requirements that LLCs and corporations should fulfill in order to stay compliant:

Limited Liability Company (LLC)

An LLC is a legally separate business entity, which is formed under state law. LLCs combine elements of a sole proprietorship, partnership, and corporation—and offer a great deal of flexibility for owners. The LLC owners determine their management framework, operational processes, and tax structure.

LLCs end with the phrase, limited liability company, or the abbreviation, LLC. An LLC provides members with liability protection from the debts and obligations of the business. In other words, a business creditor or someone who sues the business is unable to go after the owner’s personal assets. Some of the compliance requirements for LLCs include:

·         File Articles of Organization to establish the entity with the state.

·         Appoint and maintain a registered agent.

·         Obtain an Employer Identification Number.

·         File an initial report and annual reports.

·         Develop an operating agreement to outline the company’s decision-making and operating procedures to ensure other compliance requirements are addressed properly.

·         Issue member shares and record interest transfers.

·         Hold LLC member meetings and prepare minutes.

·         File income tax returns and pay applicable income tax and self- employment tax.

·         Apply for business licenses and permits.

·         Collect and remit sales tax.

·         Follow all employment and labor laws.

·         Maintain a bank account solely for business activities.

·         File Articles of Amendment to report significant business changes.

Corporation

A Corporation is a separate legal and separate tax-paying entity from its owners (shareholders). Corporations tend to have stricter compliance requirements than other business entities due the number of stakeholders and a higher degree of liability protection for owners and directors. Corporations must follow several compliance obligations, including the following:

·         File Articles of Incorporation to establish the entity with the state.

·         Appoint and maintain a registered agent.

·         Obtain an Employer Identification Number.

·         File annual reports.

·         Adopt corporate bylaws to outline the company’s decision-making and operating procedures.

·         Apply for required business licenses and permits.

·         Appoint and maintain a board of directors

·         Hold board of directors meetings (also prepare minutes afterward, and have all directors sign to approve them).

·         Hold annual shareholder meetings and prepare minutes.

·         Pay taxes and file corporate tax returns.

·         Collect and remit sales tax.

·         Issue stock to shareholders and record stock transfers.

·         Follow all employment and labor laws.

·         Maintain a bank account solely for business activities.

·         File Articles of Amendment to report business changes.

Noncompliance Consequences

Businesses that fail to fulfill their compliance requirements are considered noncompliant. The penalties differ and depend on the gravity of the violations. Some possible consequences of noncompliance include the following:

*Piercing of the Corporate Veil: The corporate veil is a legal concept that separates a corporation from its shareholders, and protects them from being personally liable for the company’s debts and obligations. If an LLC or corporation fails to fulfill its compliance requirements, a court can decide that the corporate veil has been pierced, and that the individuals who own or oversee the business are personally accountable for the debts or legal wrongdoing of the company.

*Financial penalties: Noncompliance can result in fines, back taxes, interest, and other financial penalties if a company fails to fulfill its compliance requirements.

*Suspension/termination of the business: Depending on the noncompliance severity, a company may fall out of good standing with the state and be forced to suspend operations or shut down.

*Tarnished brand reputation: Not only can noncompliance charges destroy customer and vendor confidence, but this can make lenders wary of providing financing to the business.

Staying Compliant

It is not uncommon for business owners to struggle with the numerous, complicated compliance requirements. As a result, many turn to legal and accounting professionals, such as Inc Authority. Because business compliance issues can feel overwhelming, consider contacting us to learn more about how we can help your business stay compliant. Simply put, satisfying your organization’s compliance requirements is not only mandatory, but can be the key to long-term success.

When you incorporate with Inc Authority not only do you get access to the tools and resources our business team has to offer, but you also get guidance . Getting started is easy, form your FREE LLC today!