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.