Successfully incorporating or forming your new business is only the beginning of a significant amount of ongoing paperwork and constant administrative requirements. Even though these formalities often seem to get in the way of “doing business”, they should not be taken lightly, especially for smaller organizations. Failing to keep up with these requirements can lead to serious business ramifications, costing you in the long run.
The consequences of non-compliance
The most common consequences of neglecting the these formalities (e.g. taxes, other compliance documentation, and paperwork submission) are government-imposed fines, fees, and penalties. While these unnecessary, and completely avoidable expenses are rarely substantial on their own, they can begin to add up rather quickly. Some small organizations find the accrued cost of these penalties to be a serious financial obstacle they are unprepared to handle. In rare cases, neglecting these formalities can lead to a business dissolving completely.
The biggest consequence of non-compliance is that it potentially opens a company up to extra governmental scrutiny. This may result in the government “piercing the corporate veil”. This means that due to non-compliance, your company will not receive the usual corporate protections. It can be a serious problem for a business’s owners if the company fails and has debts to settle, or is taken to court. If this is the case, the business in question will lose its right to limited liability protection. Not only will the company be forced to pay any debts it is found to owe, but the ownership’s personal assets may be seized as well.
Corporations typically face the greatest amount of internal compliance requirements, including holding documented annual shareholder, director, ownership, and management meetings. They are also required to keep close tabs on any stock related transactions, and maintain an in-depth set of written bylaws. Beyond just keeping up with compliance requirements, these records are often closely scrutinized during legal proceedings regarding the corporation, as well as during any sale of the company.
LLCs face a less demanding set of internal compliance requirements, however they are highly encouraged to accurately document as much of their organizational, financial, and ownership structures as possible. This often protects the company in the event that it faces legal action, or faces any audits.
External compliance requirements
There is also a great deal of external compliance requirements that all types of businesses must file as well, to remain in good standing with their state. These commonly include written annual reports, as well as filing and paying relevant franchise taxes. Each state has different deadlines and fees related to these processes, which can vary greatly depending on your location. As a result, it is in good practice to understand these details early on in your businesses life. Some states (notably Nevada and California) also require an initial report to be filed within the first few months of any new business’s operations.
If you need assistance…
If you need assistance in determining what ongoing compliance requirements your new business will have to follow, there are several resources available to help you.
A compliance kit is a common tool used by small business owners, which offers several custom printed compliance related documents relevant to your state. These kits are designed to help you present an effective set of ongoing paperwork quickly and easily. Alternatively, there are several templates for these documents available online which are designed to help the speed the self-filing process up for your company as well.
However, there is no better alternative for assistance than seeking professional advice regarding any compliance issues. Whether this is a hired registered agent, an attorney, or accountant, speaking with a knowledgeable dedicated business professional is the most fool-proof way to ensure that you are in complete compliance, and taking care of all of your ongoing formal requirements.
The experienced professionals at Swyft are here to help. Contact us today!