You’ve taken steps to incorporate your business, which has helped you on your path toward future success. Now, you just need to understand what you need to do to remain compliant and stay in business.
By complying with the applicable laws and requirements- whether on the local, state, or federal level- keeps your business in good standing. This means that your paperwork, annual reports, and fees are up to date, including maintaining a registered agent of record.
If you are ever non-compliant, it puts your business, brand, future success, and even your personal assets at risk. You may lose your personal bank account, home, and anything else you own that has value. However, this can be avoided by tracking your required compliance activities and their deadlines. In this article, we’ll outline the basic tasks that need to be on this checklist. Please note that your state may have additional tasks that you must comply with as well.
Below, we’ll look at the compliance checklists for the following:
- Limited Liability Companies (LLC)
Corporations draw the most scrutiny from regulators and therefore have the most formal requirements. If you don’t comply with these, you may put your business in jeopardy. You must start by holding a meeting with your directors and shareholders. The directors will appoint the corporate officers who must understand their roles and responsibilities.
Additionally, corporations are required to hold annual meetings with the proceedings documented. If there are any shareholders or board of directors’ meetings, those proceedings must be documented as well. Finally, decisions regarding the sale/transfer of stock or any shareholder actions must be documented. Most corporations have a binder where they keep all of their organizational documents.
Limited Liability Companies
While a compliance checklist for an LLC is not as formal as that of a corporation, there are still requirements that must be complied with. First, there must be an operating agreement between the manager and the company member that outlines management guidelines, names of members, and roles/responsibilities of the member and manager. It must specify the functions that are managed by the manager versus those that are member managed.
Finally, the process for orderly transition in case there is a change of management or ownership needs to be outlined in the agreement. This is critical in case you decide you want to bring on additional partners or you decide to sell your business.
Terms You Should Be Familiar With
Whether you have a corporation or an LLC, there are some terms you need to be familiar with:
Whether you have a corporation or an LLC, you must have a registered agent. This gives your company a physical address for a service of process. For example, if your business is sued, the summons and complaint will be received by the registered agent. If you do not have a registered agent, you put your business at risk. The agent is also responsible for accepting state documents, such as franchise tax reports and annual reports.
Most states require annual reports to be filed with the Secretary of State. There are some states that require biennial reports and some request the company files an initial report, due within a few months of incorporation or formation date. There are usually fees associated with filing annual reports, known as a franchise tax or filing fees. In order to help businesses comply, many states have created online portals to file annual reports.
There are some states that have publishing requirements for a company after they have incorporated or after formation is complete. For example, you must advertise in your local paper that your business is officially registered.
What happens if you don’t comply?
If you do not comply with any of the regulations/requirements, no matter what level they are on, you’re putting your business and your personal assets in jeopardy. Even at the state level, if you do not comply, the state may dissolve/void your business. You will not be in good standing until you make the appropriate filings or pay the fees. Some states require a Certificate of Reinstatement.
If your company is sued and you don’t take the appropriate steps, your corporation may lose its veil of protection. This is known as “piercing the corporate veil.” Your personal assets are no longer protected.
Compliance Does Matter!
As the business owner, it is up to you to make sure that your company is in compliance with all regulations at all times. This is critical to the survival of your business. If you’re interested in learning more about how to comply with your state laws regarding corporations, contact Hemmingway Financial Group. We can help you make sure that you follow each and every part of your compliance list.