Managing Your Business
How to Ensure Your Side Hustle is Compliant
How to Ensure Your Side Hustle Is Compliant
You're running a side hustle you really enjoy, and you're making some extra, well-needed cash. That's great! Just one question. Is your side hustle compliant?
Every state and municipality has laws and regulations that small businesses, including side hustles, need to heed. If you fail to do what your state or city requires, you risk being fined for noncompliance. That can mean losing certain privileges or paying fines and penalties. Laws surrounding your business will vary according to your industry, where your company is located, and the business structure you've chosen.
Why Business Compliance Is Important for Your Side Hustle
Compliance involves internal and external requirements. External requirements include paying taxes with state and federal governments and filing required paperwork. If you fail to comply, you can be subject to fees and penalties, and they may be stiff.
Internal requirements include what you are expected to keep on record at your place of business. These documents need to jive with what you've sent the government. You may need these documents if you apply for a loan or decide to sell your business.
Good recordkeeping is vital, especially if someone takes legal action against your company. The documents provide transparency and show that your company operates according to standards set by your industry and state and federal government. If you fail to show this, you can lose your limited liability protection. That means your personal assets become available for paying off your company's debts. The results could be financially disastrous for you personally.
Compliance Tips for Your Side Hustle
To keep your assets and your small business safe, it's essential to make sure that you've met all necessary requirements. Ensuring that you are compliant will enable you to enjoy your side hustle, knowing that everything is in proper order.
Requirements vary according to business structure and your state. Here are some common compliance requirements.
Most municipalities require that you hold a business license if you are conducting business in the city. This applies even if you are operating as a sole proprietor.
Employer Identification Number (EIN)
An EIN is required if you are operating an LLC or corporation. If you are running a sole proprietorship, you can use your social security number or an EIN. You can apply for an EIN with the IRS. Having one is recommended, as it helps to protect your identity.
Annual Report or Biennial Statement
Most states require you to check in once a year or once every two years regarding your business. The state may set the due date for your check-in on the anniversary date of your business formation or another date.
Report Filing Fees
Annual reports and biennial statements generally require paying a mandatory filing fee.
Depending on your state, you may owe a franchise tax fee if you run a corporation or LLC. This is generally the case if you are selling physical items.
Pay required federal taxes, including income and employer taxes.
Many states require that you file your initial reports after incorporating. They will usually have a deadline date for filing.
Articles of Amendment
Whenever you make an important change to your company, such as a new address, name, or officers, you must report this information within your articles of amendment.
Affordable Care Act
The ACA requires that businesses with 50 or more employees provide health coverage to employees and report that to the IRS. A single-person, part-time operation probably won't have to worry about this, but it's something to keep in mind if your side hustle becomes a main hustle.
Certifications, Permits, and Licenses
Keep up to date on any state, federal, and industry permits, licenses, and certificates. Obtain recertifications as needed. Renewal requirements vary, so check with your state or local government for deadlines.
Corporation and LLC Compliance Requirements
Corporations have the strictest and most complicated compliance requirements. Owners are required to have annual director and shareholder meetings. Written meeting minutes are required, as well as documented bylaws. You must also keep records of when stock is issued and transferred to shareholders. It's vital that you also have on hand all operating agreements, contracts, and licenses, as well as copies of membership shares and records of member interest transfers.
Because of these extensive requirements, a full C Corporation or S Corporation business structure might be overkill for a simple part-time side hustle. LLCs have fewer requirements and are a good choice for sole proprietors who want to protect and grow their business.
Obtain a Certificate of Good Standing
Also known as a Certificate of Authorization or Certificate of Existence, this document verifies and proves your company is conducting business in full compliance with the laws and regulations of your state. A Certificate of Good Standing may be required if you open accounts, apply for licenses, secure financing, execute contracts, or sell your side hustle.
A Certificate of Good Standing generally contains your company's official name and confirms that you are authorized to conduct business in your state. The document will also verify that your business is current on all state taxes and fees and that you have filed any annual reports as required.
What Happens if Your Side Hustle Is Not in Good Standing
Failure to be in good standing can be detrimental to your side hustle business in several ways. When your state holds your company not "in good standing," you may be subjected to late fees, fines, interest payments, and franchise tax fees, as well as other penalties.
Losing your company's good standing may result in you being unable to secure financing. You also won't be allowed to do business in another state, open accounts, apply for licenses, execute contracts, or even sell your business.
If you fail to rectify the various issues with your business, you risk your company being dissolved through an administrative dissolution. This dissolves your corporation or LLC, leaving you exposed to all your company's liabilities.
If you apply for a Certificate of Good Standing but are denied by your state, your side hustle could be considered in "bad standing," even though you're still operational. It's critical to address this situation as soon as possible to ensure that your company gains compliance.
Swyft Filings can help you apply for and obtain a Certificate of Good Standing in your state. All you need to do is answer a few simple questions and our experienced business experts will get started today.