No matter how big or small a business entity is, it has to follow the regulations that federal, state, and local governments enact. That is where corporate compliance comes in.
What Is Corporate Compliance?
Business entity compliance is an ongoing responsibility. It covers all applicable regulations related to the type of legal structure of the company. It refers to all aspects from keeping track of organizational meetings to following state and federal laws. A company has to monitor compliance and implement corrective actions in case it finds any problems.
While there may be standard compliance regulations in the country, every state has specific laws governing business entities. Compliance means that the company does its obligations to remain in good standing.
Internal and External Requirements
The business compliance responsibilities of a company can be divided into two categories. These are the internal and external requirements.
- Internal Requirements – As the name suggests, these are the things that should be done within the company. In a corporation, the shareholders and directors will be in charge. Meanwhile, limited liability companies (LLC) have members and managers. Internal requirements should be properly documented and included in the company records. These may be necessary in case the company faces a lawsuit or the owners decide to sell the business.Here are some examples of internal compliance requirements:
- Holding the initial and annual directors’ and shareholders’ meetings
- Recording detailed minutes of company meetings
- Adopting and maintaining bylaws
- Issuance of stocks to shareholders
- Keeping records of all stock transfers
- Holding the initial and annual directors’ and shareholders’ meetings
In most cases, the following are optional activities:
- Updating the operating agreement
- Issuance of membership shares
- Recording membership interest transfers
- Holding annual meetings of members and managers
- External Requirements – On the other hand, external compliance requirements are those imposed by the state where the business was organized and states where the company is registered to conduct business. In most cases, state compliance obligations include the following:
- Annual or Biennial Reports – Most states require LLCs and corporations to file annual or biennial reports. These come with corresponding fees. States impose deadlines for the filing of these reports.
- Business Licenses and Permits – Depending on the industry the company is in, its business activities, and the location of its primary place of business, it may need to obtain business licenses and permits. Some of these may have ongoing reporting obligations. Check these with state, city, and county offices.
- Taxes – Another important compliance obligation of a business entity is to pay and report taxes. Here are some of them:
Other taxes may vary depending on the activities of the company. These may include sales and use taxes, franchise taxes, employment taxes, and unemployment insurance taxes.
The Importance Of Compliance
Taking steps to meet the legal obligations of a company may seem like an easy task. However, focusing on minimum requirements alone can lead to missed opportunities. A company needs to understand the reasons for the rules and regulations governing its business. Doing this will help in maximizing the benefits that the business entity structure offers while ensuring that the company stays compliant at all times.
Maintaining Corporate Compliance
Once the company has its internal policies in place, it will have to review them periodically so that it can make changes if necessary. It may help to set dates for scheduled compliance audits.
In case there is a need to change a certain policy, the company will have to create a plan on how it will communicate the changes to the rest of the organization. Some companies decide to get signed acknowledgment from employees.
Others who want to conserve resources opt to keep tighter control of problems that can pose the highest risks to the organization. They do so while implementing casual monitoring programs for minor risks. Like the policies, the audit procedures of the company should also be tweaked based on the circumstances and needs of the business.
Forming and maintaining a business can be exciting. However, the responsibilities that come with it can be a little daunting for many new entrepreneurs. That is because the compliance obligations of a company do not end once it has successfully registered the business operations with the state. It has to make sure that it remains compliant with state rules and laws throughout its existence.
Here are some simple tips that can help business owners ensure that their company remains in good standing status with the state:
- Learn the state processes. The obligations of the company will start as soon as it decides to register its business operations. The business formation process will vary depending on its business entity structure and the state where it will be organized.In most cases, the multistep process includes the naming of the company, filing for formal paperwork, and paying the corresponding fees.
- Designate a professional registered agent. In most states, if not all, a company is not required to appoint a commercial registered agent. Some owners choose to act as their company’s registered agent. However, hiring a service provider gives the business some privacy when it comes to legal matters. That is because all legal and government correspondence will be delivered to the office of the registered agent.Additionally, the registered agent receives reminders for the company’s state obligations. A commercial registered agent has experience in handling various business documents. They will also contact the company promptly to ensure that the messages and reminders from the state reach the company. Having a reliable registered agent like DoMyLLC can be a great way to ensure compliance with state laws.
- Never forget deadlines for reports. The necessary information to complete the annual or biennial report will vary depending on the state. The same is true for deadlines and fees.However, the required details typically include the name of the company, its principal office address, and the name and address of the registered agent. The names and addresses of the company’s directors, officers, managers, or members should be given as well. Filing the report is necessary to keep the state up to date on any changes in the business.
Corporate compliance is a must to make sure that the company remains on track. At the same time, it maintains the good standing of the company with the state.
With all the responsibilities that come with entrepreneurship, some people may find it hard to focus on ensuring compliance with both internal and external requirements. Fortunately, the whole ordeal is not necessarily something that should be handled by only one person.
With the help of a reliable third-party organization like DoMyLLC, there is no need to worry about compliance. Our team will handle all the paperwork for you. Contact us today to find out more.
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