Business Compliance: A Guide for Entrepreneurs

Business compliance is a catch-all term for a company’s adherence to the laws and regulations governing its business. Depending on your industry, where your operations occur, and how you’ve chosen to structure your company, specifics of these laws and regulations will vary.

If “compliance” feels like a heavy lift—especially on the days you’re juggling marketing, production, and quarterly taxes all on the same afternoon—consider this: being savvy and proactive about addressing financial, safety, and other regulations actually takes a lot of the guess work out of managing your business. In fact, it’s what will set your business up for long-term success!

Why is business compliance important?

Business Compliance External Requirements:

  • These are determined by federal, state, and local laws and industry regulations applicable to your business.
  • Fees and penalties for non-compliance are established by the jurisdiction where your company is registered to do business, by industry standards, and by applicable federal regulations.

Business Compliance Internal Requirements:

  • These are intended to provide transparency and accountability, ensuring that your business transactions and operations are run with integrity and are free from corruption.
  • They are also dictated by the financial and other reporting rules you agreed to when you registered your business as a corporation or LLC.
  • Penalties (such as reprimands, probation, or dismissal) for infractions are determined by company executives, board members, and managers.

Responsibilities—and the consequences of ignoring them

Once you’ve set up a corporation or LLC, depending on state specific guidelines, you might need to fulfill initial and ongoing compliance requirements. Consequences for small businesses of failing to do so can be catastrophic, including:

  • Late fees and fines due to failure to register or renew permits and licenses;
  • Exposure of owner(s) to company debts and defaults;
  • Loss of good standing

If a corporation or LLC is unable to prove it met all internal compliance and state requirements either when sued or when selling the business, the court may rule that the business has been acting like a sole proprietorship or general partnership. This “pierces the corporate veil,” meaning that the individual owner(s)’s limited liability protection is removed, making personal assets vulnerable to company debts.

Why does “good standing” matter?

If a corporation or LLC fails to comply with annual (or other) state filings and requirements, the state will no longer hold the company “‘in good standing” and will impose late fees, interest payments, franchise tax fees, and other penalties. Being out of good standing can have further consequences, including:

  • Being unable to obtain a Certificate of Good Standing from the state. A Certificate is needed to obtain foreign qualification to do business in another state, execute contracts, open accounts, apply for licenses, secure financing, or sell your business.
  • If a company remains out of “good standing” long enough, the result may be “administrative dissolution,” which means the legal entity of the corporation or LLC is dissolved, exposing the individual owner(s) to company liabilities.

Internal compliance requirements for corporations and LLCs

Internal compliance requirements for corporations include:

  1. Clear and up-to-date records of business transactions, policies and procedures, and bylaws
  2. Retention of any licenses and contracts, including all addendums and revisions
  3. Providing stock to shareholders
  4. Recording all stock transfers
  5. A board of directors
  6. Annual meetings (and for some states, initial meetings); recorded meeting minutes

Internal compliance recommendations for LLCs include:

  1. Clear and up-to-date records of business transactions, policies, and procedures
  2. Retention of any operating agreements, licenses, and contracts, including all addendums and revisions
  3. Issuance of membership shares
  4. Records of all membership interest transfers
  5. Annual meetings of members and, if the LLC is manager-managed, of managers; recorded meeting minutes

External compliance requirements

It’s safe to say that pretty much every aspect of doing business is regulated. Much of that regulation is managed through the process of filing reports or applying for permits and licenses. Zoning laws require developers to file environmental impact statements. Lawyers, doctors, teachers, and restaurant workers must have, and maintain, licenses valid in the jurisdiction where they work.

Filings that are commonly involved in incorporating and running a business, depending on the jurisdiction, include:

  1. Employer Identification Number, or EIN
  2. Selecting a Registered Agent Service
  3. Annual Reports
  4. Franchise tax
  5. Initial Reports/Statements
  6. Business Licenses/Permits

Certain industries have heavier regulatory filing requirements, for example: banking and finance, healthcare, agriculture, mining and resource extraction, military and law enforcement, and food services.

Enforcing and Supporting Business Compliance

For heavily regulated industries like the ones cited above, compliance requirements are often the basis of operational processes and job requirements. Even if this is not true for your industry, your own company policies and procedures are still an effective way of ensuring good standing and full compliance with all regulations.

A great resource to help you do this is the Health Insurance Portability and Accountability Act (HIPAA), even though HIPAA’s requirements are specific to the healthcare industry. Here are four examples of items applicable to most businesses, culled from HIPAA’s internal compliance list:

  • Physical Entrance Policies—designate who has access to which physical facilities.
  • Virtual Access—designate who can access your servers, networks, programs and other data.
  • Password Protection—explain and state your company’s password requirements and overall guidelines regarding how employees should handle their passwords.
  • Emergency Response—provide instructions for emergencies, ranging from fire drills to terrorist attacks and major natural disasters.

We can help! Our teams have helped businesses stay compliant since 1899.

As a small business owner, you want to protect your company’s good standing as effectively and efficiently as possible. From formations to ongoing business filings, we help you stay on track as your business grows. We specialize in a range of business services, such as: