Business compliance is a catch-all term for how well a company’s follows the laws and regulations governing its business. Laws will vary depending on your industry, where your business is based, and how you’ve chosen to structure your company.
If “compliance” feels like a heavy lift—especially on the days you are dealing with marketing, production, and quarterly taxes—consider this: addressing financial, safety, and other regulations 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?
- Your industry decides these, as well as federal, state, and local laws.
- You can be subject to fees and penalties that are chosen by the state rules, industry standards, and federal laws.
- These provide transparency into how your business operates with integrity
- They are also dictated by financial and other rules that come with filing a corporation or LLC.
- Penalties (such as reprimands, probation, or dismissal) are determined by company executives, board members, and managers.
Responsibilities—and what happens if you ignore them
Once you’ve set up a corporation or LLC, you may have to meet initial and ongoing requirements. This varies from state to state. Failure to do so can have consequences, including:
- Late fees and fines due if you fail to renew permits and licenses
- Owners are responsible for company debts
- Loss of good standing
If a corporation or LLC can’t prove it met all requirements, whether it is being sued or for sale, the court may rule that the business was operating like a sole proprietorship or general partnership. This “pierces the corporate veil,” meaning that the limited liability protection is removed, and the owner’s personal assets are available to pay off to company debts.
Why does “good standing” matter?
If a corporation or LLC does not comply with annual (or other) state filings and requirements, the state will no longer hold the company “‘in good standing.” The state can impose late fees, interest payments, franchise tax fees, and other penalties. Also, losing your good standing status can have further consequences, including:
- Being unable to obtain a Certificate of Good Standing from the state. A Certificate is needed to get permission 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:
- Holding onto all files of your transactions, policies and procedures, and bylaws
- Keeping records of any licenses and contracts, including all additions and revisions
- Providing stock to shareholders
- Recording all stock transfers
- Having a board of directors
- Holding annual meetings
Internal compliance ideas for LLCs include:
- Clear and up-to-date records of transactions, policies, and procedures
- Having all paperwork on hand, operating agreements, licenses, and contracts, including all addendums and revisions
- Copies of all membership shares
- Records of all member interest transfers
- Minutes from any annual meetings
External compliance requirements
It’s safe to say that businesses are regulated. Businesses meet these regulations by filing reports or applying for permits and licenses. Developers must file environmental impact statements to satisfy zoning laws. Additionally, lawyers, doctors, teachers, and restaurant workers must have valid licenses valid in the city or state where they work.
For example, common external compliance filings include:
- Employer Identification Number, or EIN
- Having a Registered Agent
- Annual Reports
- Franchise tax
- Initial Reports/Statements
- Business Licenses/Permits
Certain industries have more rules, for example, banking and finance, healthcare, agriculture, mining, military and law enforcement, and food services.
For highly-regulated industries like the ones above, these rules are often the basis of operations. Even if this is not true for your industry, your own company policies and procedures can also help ensure good standing and full compliance.
For example, check out 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 that apply to most businesses, taken from HIPAA’s internal rules:
- Physical Entrance Policies—decide who has access to which buildings and rooms.
- Virtual Access—choose who can access your servers, networks, programs and other data.
- Password Protection—create password requirements for employees.
- Emergency Response—provide instructions for emergencies, ranging from fire drills to natural disasters.
We can help you stay compliant.
As a small business owner, you want to protect your company’s good standing. From formations to business filings, we also help you stay on track as your business grows. We also offer in a range of other services, such as:
- Registered Agent Service
- Obtaining an Employer Identification Number (EIN)
- Annual Reports
- Business License Research
- DBA “Doing Business As” Name
- Operating Agreements
- Certified copies of LLC or Corporation documents
Want to learn more? Get our free incorporation toolkit, complete with a step-by-step guide, business plan template, and more!