Compliance Requirements

Whether you're a new startup company that's incorporated your business or formed an LLC, or an established enterprise, you should most definitely be aware of compliance requirements.

Small business owners often neglect compliance requirements and pay for their mistakes later. In fact, if the requirements are not met or are not completed in a timely manner, the company can lose its status as a corporation or LLC. Losing active status can mean that the owners are no longer protected through limited liability, which means their personal assets can be seized and sold to pay off the company's debts. If you want to avoid this situation and protect your limited liability, it's necessary to protect your corporate or LLC status.

What are the requirements?

• Internal requirements- the actions taken by the shareholders, directors, and managers within the LLC or corporation are termed internal requirements, including maintaining minutes and company records. These are most commonly ignored mostly in LLCs as it's not compulsory for them. Being mandatory, corporations usually have very stringent rules as regards the internal requirements. Updating bylaws, issuing stock to shareholders, annual or regular meetings of the directors and owners, and subsequent stock transfers should be done continuously in corporations.
• External requirements- these are the requirements imposed by the state of formation for the LLCs or corporations. Several states require annual or biannual franchise tax and other filing requirements such as a statement of officers. Additionally, federal tax filings to the IRS are required for most entity types.

It is usual practice to use a Corporate Kit or LLC Kit to organize the records. There are sample bylaws, agreements of operation, stock interest certificates, an LLC or corporate seal, sample meeting minutes, and a transfer ledger included in the kit.

When the corporations or LLCs file statements of information, the state requires fees to be paid whether the statement is annual or biennial. Each state differs on the required fees, and the amount also depends on the type of business.

Some states impose a franchise tax to be paid along with the statement fees. The revenue generated by the corporation or LLC usually decides the fees, and most states maintain a minimum amount and may also depend on the number of shares. The owners, therefore, need to budget in advance before incorporating their business. They also need to know the dates set for payment of these fees, taxes, and statements.

What are the consequences of ignoring the requirements?

A determination can be made that limited liability protection is no longer be given to the owners as they have failed to submit the statement or fees. On outstanding fees or franchise tax, the state may also impose a penalty. In the long run, this can lead to the entity's dissolution, and the company would then need to be reinstated.

To avoid the consequences, make sure you have a thorough knowledge of the compliance requirements – then you can build your business on a firm footing and with peace of mind.