Business Compliance Requirements & Consequences
As soon as you form an LLC or incorporate your business, you would need to prepare yourself to fulfill all the ongoing business compliances. And if you fail to meet with the requirements at the right time and as per the rules, your small business would encounter painful consequences.
Comprehending the Internal Requirements
The business compliances come in two parts, external and internal. The internal business compliances are those that have to be exercised within the limited liability company or the corporation by the managers and the members or the shareholders and the directors, respectively. As a matter of fact, the internal requirements are mostly overlooked which can then turn out to cause issues for the business.
Hence, these internal business compliances have to be documented in the company records just like every other external business compliances. In short, you might need these records during any lawsuit filed against your company or related event, or even for selling the company.
The business compliances for LLC and a corporation has been explained below:
Even though it is not needed for an LLC, it is highly suggested that you keep and maintain the operating agreement updated at all times, hold annual meetings of members, record all membership interest transfers, issue membership shares, and also hold annual meetings of managers, if the LLC is manager-managed.
Both the S corporation and the C corporations have the most stringent internal business compliances which includes the recording of all the stock transfers, issuing of stock to shareholders, adopting and maintaining the updated bylaws, and holding the initial and annual shareholder and director meetings.
To make things easier, some businesses purchase packages from agencies to fulfil their compliance requirements. Here are some important points under this:
A lot of the small business owners utilize the business compliances kit to keep all their records organized. Usually, the items under this include the sample meeting minutes, a corporate or LLC seal, stock or membership transfer ledger and interest certificates, and sample operating agreement or bylaws.
The template for meeting minutes, operating agreement and the bylaws can simplify the internal business compliances procedure. Moreover, these things are normally provided by the incorporation services provider like Inc Paradise, in case you incorporate online.
Understanding External Business Compliances
The external requirements are those that are imposed by the state/country in which you have incorporated your company in and in the state/country in which you have registered your company for conducting business in (this means that the business had undergone the foreign qualifications.)
The state business compliances usually include the payment of a corresponding state fee and the filling of the annual report. Something that you much follow and keep in mind while you fulfill the compliance requirements are:
Not all, but a few states like Nevada and California need the initial statements and reports to be filed, and the fees have to be paid within the months that follow the incorporation of the company. If you hire Inc Paradise to incorporate your business, we would let you know about the business compliances that you need to meet.
Learn about the price of these obligations
Since the franchise taxes and annual statements are the ongoing business compliance requirements, it is better to know all about the various requirements that you need to meet before you incorporate your company. This would allow you to plan all your budget as per it.
A few states also have the franchise tax which is the fee for the opportunity of running as an LLC or a corporation in that state. Each state incorporates different formulas that can be based on the number of par value and authorized shares or the business revenue, for calculating this tax. More about Delaware Franchise tax can be found here.
Many of the states need the LLCs and corporations to file an annual report and at times even file the annual statements that enable the states to track the qualified or formed LLCs and corporations. The states that do not have any of these business compliances, have another one where the company has to provide the biennial statement. In both the cases, a fee is required as well along with the statements that range from $10 to $300 or even more.
Due dates for franchise taxes and annual statements vary by state
A few states connect the anniversary of the LLC’s or the corporation qualification or formation with the due dates. On the other hand, the other states set a specific date for all the annual statements for the corporations and another date for the LLCs.
In short, all the business compliances have to be followed and fulfilled as and when required by the state for the business to grow and remain in a good standing.
Facing the Consequences
In case an LLC or the corporation is sued and is not able to provide all the LLC or corporate formalities and the state requirements which was the business compliances for the company, the judge has the right to declare that the company has been acting like a general partnership or a sole proprietorship.
And with this, the situation of “piercing the corporate veil” can come up, which means that the limited liability protection would disappear and the individual would be left with their assets vulnerable. Moreover, if there is a lawsuit judgment declared against the company for its ignorance, then the owner would lose all his/her assets under it.
Furthermore, there are many other consequences that the company can face at the state level which can take place before the piercing the corporate veil. In case an LLC or a corporation doesn’t comply with the ongoing or annual business compliances by the state, the company would no longer exist in good standing.
Every state has various parameters for the good standing and a lot of these state impose the interest payments and late fees on the outstanding franchise tax and/or annual statement fees. And if your company tends to stay out of the good standing post for a long time, it would lead to the administrative dissolution. When your company is lead to the administrative dissolution, you will lose all the benefits of being an LLC or a corporation.
Getting compliance assistance with Inc Paradise
At Inc Paradise, we ensure that your business stays compliant by going the extra mile needed since we understand the importance of a company to remain in the “Good Standing” status. The entire process is made as easy and convenient as possible.
Unlike the many other providers, you can choose the services that you want and then pay for it. You would be able to monitor all the processes, and you would be notified about 2 months before the deadline for any of the business compliances.
If you are still at the stage where you want to have your company registered, Inc Paradise can assist you in registering your business and incorporating it. Contact us to know more!