After incorporating a business or forming an LLC, prepare yourself for ongoing compliance requirements. Failing to regularly meet ongoing requirements in a timely manner can have big consequences for small businesses.
Business compliance requirements fall into two categories: internal and external. Internal requirements are actions that must be taken within the corporation or limited liability company by the directors and shareholders or members and managers, respectively. Although they are sometimes overlooked, internal requirements must be documented as part of company records. It may be necessary to present these records when selling the company or in the event of a lawsuit.
- Corporations. Corporations (whether taxed as C corporations or S corporations) have the most internal requirements, including holding initial and annual director and shareholder meetings, adopting and maintaining updated bylaws, issuing stock to shareholders, and recording all stock transfers. Internal requirements are imposed by the state corporation law, the corporation’s articles of incorporation, and its bylaws.
- LLCs. Unlike the corporation laws, the state LLC laws impose few internal compliance requirements. Most, do, however, require an LLC to have an operating agreement. And while it may not be required for an LLC, it’s recommended that certain internal compliance requirements be included in the LLC’s operating agreement, such as requiring the issuance of membership interests, recording all membership interest transfers and holding annual meetings of members and managers, if the LLC is manager-managed.
- Compliance kit. Many small business owners use a compliance kit to organize records. These include items such as sample bylaws or operating agreement, stock or membership interest certificates and transfer ledger, a corporate or LLC seal, and sample meeting minutes.
- Document templates. Templates for bylaws, operating agreements and meeting minutes can simplify the internal compliance process and are usually provided by your incorporation service provider if you form your corporation or LLC online. Although having a lawyer look over these documents and agreements is always a good idea.
Understanding external requirements
External requirements are imposed by the state in which your corporation or LLC is formed and any state where it is registered to transact business (has undergone foreign qualification) and which do not involve internal issues involving the owners, managers, and company. State compliance requirements often include an annual state filing (annual report) and payment of a corresponding state fee and the appointment and maintenance of a registered agent and registered office. Here are some things to keep in mind as you address your requirements:
- Annual reports. Most states require corporations and LLCs to file an annual report (sometimes called something else like an annual statement), which provides states with certain basic information such as the legal name, principal office address, and the name of the registered agent and registered office address. Other states require a biennial statement. In either case, states typically require that a fee
bepaid when reports are filed.
- Franchise tax. Some states also have a franchise tax—a fee paid to the state for the privilege of operating as a corporation or LLC in that state. States employ different formulas, which may be based on business revenue or
numberof authorized shares and par value, for calculating this tax. Others simply charge a flat fee.
- Due dates for annual reports and franchise taxes vary by state. Some states connect due dates to the anniversary of the corporation’s or LLC’s formation or qualification. Other states set a specific due date.
- Know the cost of these obligations. Because annual reports and franchise taxes represent ongoing requirements, you should research requirements prior to incorporating or forming an LLC so that you can plan your budget accordingly.
- Initial reports. Some states also require initial reports/statements to be filed and fees to be paid within the months following incorporation or LLC formation. Your online incorporator or registered agent will let you know if your state has this requirement.
- Registered agent and office. The states also require domestic and qualified foreign corporations and LLCs to appoint an agent authorized to receive service of process and other official state communications on behalf of the corporation or LLC. This is generally called a registered agent. The registered agent must have a physical location in the state. This location is often called the corporation or LLC’s registered office.
Facing the consequences
If a corporation or LLC is sued and the evidence showed the owners did not respect the corporation or LLC’s separate existence, and the judge believes it would be unfair to the person suing to treat the owners and company separately, the judge can “pierce the corporate or LLC veil”. This means that limited liability protection disappears and leaves
There are other serious consequences besides piercing the veil. If a corporation or LLC does not comply with a state’s annual or ongoing requirements, that company is no longer in “good standing.” Each state defines good standing differently. Many impose late fees and interest payments on outstanding annual report and/or franchise tax fees which will have to be paid to bring the corporation or LLC back into good standing. Being out of good standing long enough may lead to administrative dissolution, in which all benefits of being a corporation or LLC are lost.
Getting compliance assistance with BizFilings
We go the extra mile to ensure your business stays compliant and keeps its important "Good Standing" entity status by making it as convenient and easy as possible. Unlike other providers, we offer complimentary monitoring to keep you informed about important state reporting obligations and no hidden fees for the services you need to stay compliant. We offer:
- Franchise Tax & Annual Report filing alerts. Registered agent customers receive ongoing alerts for any state franchise tax or annual report filings that are due after you incorporate. We make it easy with a few clicks for you to file and keep your business in good standing with the state.
- Managed filing services. Registered agent customers can enroll in
automaticfiling of franchise tax and annual reports. A dedicated team monitors,updates your state reporting requirements and files on your behalf. Learn more.
- BizComply management tool. Our exclusive, account management tool lets you schedule and
trackall your company and compliance events, as well as email you reminders of upcoming state obligations, invoices and more.
- Prompt handling of official documents. We provide prompt and efficient handling of
importantstate, tax and legal documents received on behalf of your company.
- Professional and discreet Service of Process delivery. We’ll email and digitally scan Service of Process documents to you for instant viewing.
- Exceptional, friendly customer service. Available by phone, email or chat, our knowledgeable representatives are happy to answer questions you have about compliance, your account or placing an order with us.