Once you have incorporated or formed an LLC, compliance should be one of your primary concerns because if you don’t adhere to state and federally mandated compliance regulations, you could face serious penalties.
We have seen a number of compliance issues making their way into the business press lately, and that’s why we felt it was a good time to review the nature of business compliance requirements for our readers.
These requirements can be broken down into two primary groups: internal requirements and external requirements.
Internal compliance refers to everything that goes on inside your company in terms of compliance.
An few examples of internal compliance: both C corporations and S corporations are required to hold annual meetings for shareholders and directors and update their bylaws as necessary. All issuance or transfer of stock must be documented as well.
Limited Liability Companies are not bound to the same regulations as C or S corps, however, it’s still a good idea to document your operating agreements and official policies so you can refer to them over time. One of the easiest ways to organize your compliance materials is to put everything together into a compliance kit. This kit should include all of your stock or membership information, bylaws, your operating agreement, your corporate seal, and anything else regarding compliance that you feel you might need to refer to in the future.
External compliance requirements are mandated by the state that you have incorporated in, as well as any state that you are registered to transact business within. In most states, for example, you are required to file an annual report so the state can monitor the activity of your company.
Another external compliance requirement is the franchise tax, which is a state tax you pay for the right to operate your business in that particular state. The amount of this tax varies from state to state, although it is usually based on revenue or corporate share value.
It’s absolutely critical to stay on top of the state laws regarding compliance—especially when it comes to due dates for fees. Different states have different rules regarding when you should submit your fees, and you may miss your payments if you don’t keep on top of the proper dates for your state!
Have you ever heard the term “piercing the corporate veil?” This is when you lose your limited liability protection due to non-compliance, and yes, it’s definitely as bad as it sounds. Once the veil has been pierced, the owner’s assets are now susceptible to legal judgements.
You always want to be in “good standing” status with the state. This simply means that you are sticking to the state’s annual or ongoing compliance regulations and making your payments on time. If you do not pay your fees on time, then the state can hit you with late fees and/or interest payments. In the worst case scenario, if you are out of good standing status too long, you may lose the benefits you receive for being a corporation.
Different industries have different federal and state-level regulations when it comes to compliance, and that’s why it’s important to have some sort of compliance training program in place for your employees. Compliance is not just a matter of administrative paperwork and fees, either. It’s also about adhering to Federal mandates like the Americans With Disabilities Act and the Affordable Healthcare Act.
One of the most common compliance issues that companies face is harassment in the workplace. Sexual harassment, in particular, is a growing concern—and this one can sneak up on you. In fact, sometimes employees can be unaware that their actions or statements may be a problem, and that’s another reason why it’s so important to provide formal compliance training for your people.
You may choose to develop an in-house compliance program or you may refer to a third party provider for a pre-built solution. At Go1, we have thousands of free and paid resources to help you train up your employees, including detailed online learning programs for:
…and many more.
Remember: compliance is not a “set it and forget it” aspect of doing business. Instead, it’s an ongoing process where you need to keep your finger on the pulse of what is happening and what is changing with laws—on both the state and the Federal level.
A perfect example would be the Affordable Healthcare Act. Many companies did not stay abreast of the compliance requirements for implementing the Act until it was too late, and by that time they were facing costly penalty fees.
The best companies take the time to create a formal compliance strategy that can be referred to when it’s time to train new employees. This can save you a tremendous amount of time and headaches in the future…and it can also save you the expensive legal fees and penalties you face when you fall out of compliance.
Don’t wait for something to go wrong. If you haven’t integrated a sexual harassment compliance training program, for example, there are several free training resources available that you can use for on-boarding your staff. All it takes is a little bit of research and you can put a plan into place that will become a truly valuable asset to your corporation or LLC down the road.