Most businesses do the bare minimum when it comes to meeting the requirements in order to comply with the government. While doing this when starting up a business might seem very obvious, taking it a step further can increase opportunities for your business. The government can help you with all the benefits thy offer if you do become completely in compliance. Don’t miss the great opportunities and read more on the importance of compliance.
In its business sense, “compliance” refers to a company obeying all of the legal laws and regulations in regards to how they manage the business, their staff, and their treatment towards their consumers, all often to protect the health, safety and welfare of others. Minor examples of being compliant are obtaining licenses to do your job legally, and paying off taxes on a federal and state basis. While these examples are minor, usually the bigger the business is, the bigger the acts of compliance are. These acts also become way more complex and carry an exponential amount of responsibility. These responsibilities respond to your workers, hiring and firing, prevention of harassment, safety in the workplace, fair wages, payroll, benefits to the workers, and the list can go on and on.
Reduced Legal Troubles
Not being compliance can lead to many risks in the company. Some being obvious, such as, fines, penalties, work stoppages, and lawsuits being placed. All of this can add up to your business getting shutdown and put out. There are plenty of small compliance requirements, such as the placement of important posters. If placed in the wrong place in the office, you can get a simple warning as to where it should be, and change the location to avoid problems and stay compliant, while correcting your business in the meantime. These, as mentioned, are just considered warning. This is the most minuscule consequence you can face. There’s also costly fines for failing to meet certain obligations. Making sure you understand all your legal obligations is key. Hiring an expert or just speaking to a compliance expert periodically is the best way to go about keeping your company in compliance.
Most of the operations that must be proceeded can be more helpful than harmful. Most business do the bare-minimal because we look at these as “rules”, when in fact, these rules are only beneficial to the company. Having fair wages is one of the things we businesses have to stay in compliance with having. This actually boosts the working environment by having the employees know that their peers aren’t doing the same work, and getting paid double. This leads to a healthier work environment and more chemistry within the work field which leads to higher productivity. While fair wages is only an example of what the bare minimum of being compliant can do to a company, reviewing the more advanced business practices can further enhance your business. These practices can be searched through agencies such as the U.S Equal Employment Opportunity Commission and the U.S Occupational Safety and Health Administration. These agencies’ practices can further enhance your company.
Public Relations At It’s Best
After the hard work and sweat put into being completely in compliance with the government, make sure to start touting your own horn now! When mentioning open positions in your website or any other marketing materials you use, start mentioning how you’re an equal opportunity employer. Let it be known your company is a non-discriminate employer. List all the great things you accomplished within compliance to make people more appealed to work and do business with you, and watch your business simply grow.
Are you planning to start a business?
If yes, then you should know the compliance requirements. You should know these requirements to understand how to manage a business and its staff and how to treat the customers. The compliance requirements are needed to ensure that the businesses are acting responsibly without violating the legal norms. These laws and regulations are applicable to both the small and large companies. If you have a small business then your obligation might be less, but in the large business, you will have to meet more requirements.
Types of the Compliance
There are two types of the compliance, internal and external. Both these categories are applicable to the small and large businesses. Followings are the details of both these types of the compliances.
Internal requirements are those actions that need to be taken by the company authorities within the corporation. These requirements are documented in the company’s record and all the employees are obliged to follow these rules and regulations. If you are selling your company, you will be asked to present those documents for the future use. Though these internal requirements are easily overlooked, but they need to be maintained.
When it comes to the large companies, they need to follow the internal requirements to maintain the discipline. They have a strict internal compliance that includes the forming of the board of the directors, conducting annual director meeting, creating and updating legal procedures, and offering stock to the shareholders. But when it comes to the small business, they usually maintain compliance kit to organize the records. The compliance kit maintains all the required information that includes sample bylaws, stock certificates, operating agreements, sample meeting minutes.
External compliances are those which are imposed on your business by the state authorities, where it is registered. Some of the requirements of the external compliances are annual state filling and franchise tax. State compliance requirement always demands an annual statement or report and the payment of a related state fee. Followings are the some of the requirements of the external compliances.
Annual Reports: Many states require the large and small businesses to file an annual statement that permits the state to track qualified businesses. Some other states demand a biennial statement. In both the cases, states demand that a fee needs to be paid while statements are filled. The charges will vary from $10,000 to $30,000 depending on the size and condition of the business.
Franchise Tax: Some states also demand franchise taxes to both the large and small business. The franchise tax is the one that needs to be paid to the state for the privilege of operating as a business in that state. States apply different formulas to collect the franchise tax from the corporations.
The amount of the fee and due dates may vary from the state to state. You should consult the concerned authorities to know the legalities and when and how much you have to pay for the franchise tax.
Small Business Compliance
Laws have been enacted that apply specifically to your small business, whether it happens to be a corporation or an LLC, or limited liability corporation. As the owner/operator, it is your responsibility to know what those are, and to be prepared to obey those laws. Therefore, the purpose of this post is to inform you of some requirements that your governing state, or the federal government, will expect you to know.
Two Types of Requirements
As the owner of a small business entity, you are responsible to know about two types of compliance requirements: internal and external. Internal requirements, according to the Bizfilings website, concern those measures that must be taken within the organization–whether it is a corporation or LLC, by the appointed shareholders, members, or managers. These are the type of requirements which must be documented into the company records. Documentation, indeed, must be thorough, in case of an audit, for example. Such a situation will be a nightmare for a company that hasn’t kept extensive records. You must show evidence that you have complied with the requirements to have periodical meetings with directors and shareholders. It also behooves you to have these records in the event of a lawsuit.
LLC’s are certainly required to show themselves compliant. However, the strictest rules are reserved for corporations. If your business is a corporation, you are required to hold initial and annual director and shareholder meetings, and to establish and keep updated bylaws. You must also show evidence of issuing stock to stockholders as required, documenting all transfers of stock.
In the case of external requirements, these are ones that are imposed by the state in which your LLC or corporation transacts business, and in other states your entity has a business presence as well. For example, there is paperwork that must be filed annually, with a corresponding fee, usually between $10 and $300. Some states charge a franchise tax. This is money paid to the state for being able to continue to conduct business in that particular jurisdiction. It is important to know the due dates for these filings, as well as the corresponding monies required to be paid. It is your responsibility to know the due dates for all of these requirements, and to construct your budget accordingly.
If you do not fulfill your responsibilities as outlined above, you could lose your LLC or corporation protection, and be vulnerable to a lawsuit against your personal assets. A judge will most likely rule in the favor of a plaintiff who wishes to sue your corporation or LLC. For example, if you are a tutor of school age children, who promised to raise your student’s grades by a certain number of points, and for whatever reason the improvement failed to take place–an irate parent could sue you personally, not your corporation. For due to your lack of compliance, your LLC or corporation status has been removed.
In addition, states have been known to dissolve small businesses over non-compliance issues. This can happen if business entities fail to comply for more than three years in a row. In the event that this happens, you may be able to re-establish your business, but the reinstatement fees can be fairly steep. Also, you may have to pay interest in addition to any back fees or taxes, if that is what was involved.
Small Business Compliance issues not only involve taxes, fees and paperwork. They can also be centered around any crisis that can lead to a lawsuit. According to the Trinet Blog, you must ensure that you are familiar with laws governing training your staff, as well as your board of directors, concerning sexual and/or racial harassment. The same holds true for wrongful termination. Familiarize yourself with the state and federal laws governing these issues, and train your people accordingly.
Business Compliance Consequences
As the business owner of either an LLC or corporation, you are required to know and understand all the legal facets of starting and operating a business. Compliance encompasses all the state, federal, and local rules needed to keep your LLC or corporation in good standing with the state or states where the firm conducts its business operations. On the formation of LLC or corporations it is important that the owners file the right formation papers with their home state and with any state they intend to operate in. They will then be granted the rights to conduct business by the states in question.
What are the Consequences of Non- Compliance?
The owners of businesses must comply with the government rules and regulations after forming an LLC or incorporating. The potential consequences of noncompliance to any business are
Fines and Penalties
The state may also levy fines and penalties against a noncompliant business.
Administrative revocation or dissolution.
Revocation is employed where the company repeatedly fails to respond to the requests that are required for filings. The company in question can either be revoked by the foreign states or dissolved administratively by the home state.
Besides, when the owner of the business fails to keep an eye on the steps needed to maintain their limited liability security, then his or her personal assets will no longer safeguarded from the lawsuits against the company. This is referred to as piercing the corporate veil and applies to both LLC and corporations.
The company may also be subjected to huge reinstatement costs.
When an LLC, PC, or corporation fails in its legal compliance, whereby it does not follow the government regulations, then it stands the risk of losing its certificate of good standing. Such a firm is said to be suspended, dissolved, void or delinquent. The loss of Good standing can damage the ability of the company to do Business. The serious consequences that are associated with the loss of a good standing status include
Loss of access to the courts
This among the most serious consequences that a noncompliant business may face. In most states, a firm that is not in good standing may not present a lawsuit in the state in question up until it restores its good standing.
Difficulties in securing financing and capital. Most lenders i.e. both banking and non- banking institutions often perceive the loss of a good standing as being risky. It is for this that they may fail to approve the financing to a company that is not in good standing.
Adversarial entity status resulting from failure to pay taxes can lead to a tax lien. The lenders are often extremely wary of the tax liens as they take priority over the other liens
Loss of the name rights
Upon the loss of a good standing, a company stands the risk of losing the rights to employ its name in the state in question. Though in some cases the company may obtain the rights to its name, it is sidelined as a result of the loss of a good standing.
The businesses should, therefore, strive to comply with all the statutory requirements for them obtain the good standing status. By so doing, they will be able to maintain all the rights and privileges of conducting business as statutory entities.
Compliance (External and Internal)
For a business to operate legally there is need for it to be in agreement with particular requirements in regards to transactions, safety procedures and labor practices to be carried out by the company. These regulations are set out with respect to the industry in which the company will operate predominantly. Any company wishing to operate legally should be ready to comply with both external and internal requirements (Internal and external compliance).
External requirements are usually state sanctioned and are aimed at the following;
- Providing assurance that the company or organization is adhering to all external requirements.
- Providing a blue print for achieving the said external compliance.
There are various range of approaches through which external compliance can be achieved. Basically, a manual that is periodically signed by the compliance management task force is used. At a more comprehensive level, there is inclusion of regular compliance confirmation procedures by a larger group of management officials and staff. At this point, non-compliance risks and ongoing risks are brought together in a self-assessment procedure.
Internal compliance ensures that policies, codes, controls and standards that are set within a company are met. These house-keeping guidelines are greatly influenced by external compliance requirements and are inclined to ensure that companies operate with integrity.
There are various benefits that the concept of compliance may extend to a business. These include but are not limited to the following;
This is especially so for internal compliance. Whenever there is compliance to internal requirements such as employee benefits, compensations, wages and employee protection, there is a favorable work environment. This in-turn works as a motivating factor to foster a positive attitude towards work.
Clients also become more confident knowing that they get the best deals since internal compliance calls for fair play in the way an organization handles its clients in terms of service and pricing.
Lower rates of incrimination.
Every business wants to be in good terms as far as the law is concerned and what better way to achieve this than to have a framework that will enable the business to achieve both internal and external compliance. A compliance department is a requirement that companies should put into use to ensure that they are able to be in good books with the law in light and with the hundreds of laws that set the legal benchmark for running a business.
The image that your business portrays in the public domain contributes a lot to the success or failure of the business. The public will quickly lose its trust in an organization that is caught up in court tussles. Needless to say lack of trust from any quarters translates to lower revenue hence lower profits. Compliance will ensure that there is both investor and client confidence by ensuring that the company upholds a favorable image. A trustworthy company is always at a better position to attract business and compete successfully in any market.
With a proper compliance framework, it becomes easy for an organization of any size to execute what is required of it and therefore operate within the set parameters as defined by law. Proper consultation will ensure workable compliance mechanisms are put in place for the organization to function as required.