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.