You are required by law to be knowledgeable of all compliance requirements whether you’re an established enterprise or a new startup company that’s incorporated your business or formed an LLC.
If you are not familiar with these laws, you can be faced with legal problems. Small business owners frequently ignore these laws will end up paying for their mistakes. In order to keep your business out of these troubles, you must be compliant with all the mandatory requirements.
A business can, in fact, lose its status as an LLC or a corporation if these requirements are not met, or if they are not made in a timely manner. Furthermore, a company that does not abide by these laws can lose its limited liability protection and face a seizure of its assets in order to pay off its debts. Protect your company’s LLC or corporate status by avoiding this pitfall.
What are the requirements?
The internal requirements- This is the term referring to all the actions taken by the managers, directors and shareholders in the corporation or LLC. All of these actions must be documented and filed in the company’s records as evidence. This fact is most commonly disregarded by LLC’s, as it is not mandatory for them. However it’s necessary for LLC’s to keep a record on their books of the minutes kept. Corporations, on the other hand, are required to keep to strict rules regarding the internal requirements. Regular or annual business meetings of the owners and directors, issuing stock to shareholders and updating bylaws and transfers of subsequent stock must all be done very carefully within corporations
External requirements- this is the term for the requirements that are imposed by the state in which the corporations were first formed. Payment of all the respective state fees and the deposition of the annual state filings are both mandatory. An annual statement will assist the states to keep corporate information regularly updated. Also, it helps in discerning whether the respective corporation or LLC is deserving of this status.
In organizing all these records, it is usual practice to use a LLC Kit or a Corporate Kit. These kits contain sample agreements of operation, bylaws, sample meeting minutes, stock interest certificates, a corporate or LLC seal and a transfer ledger included in the kit.
Whenever an LLC or a corporation returns the statements, the state requires fees to be paid whether the statement is biennial or annual. Individual states vary on the total amount that is to be paid, which ranges from $10.00 to $300.00. The amount is also dependent on the type of business.
To be a qualified corporation or LLC within a certain locality, some states require a franchise tax to be paid together with the statement fees. These fees are usually calculated based on the amount of revenue of the LLC or corporation, the value of the business compared to the market and the total number of legal shares within the company. Therefore, owners should prepare a budget in anticipation of these fees as well as be aware of the due dates for payment of these fees, statements and taxes.
What are the consequences of disregarding these requirements?
If you don’t fulfill these requirements, it is impossible to save your LLC or corporate status. Corporations and LLC’s face judgment that involves a cease in its limited liability protection for owners who fail to submit the fees and/or statement required. This action is known as “piercing the corporate veil.” If a corporation or LLC fails to fulfill these requirements, they may never have a good standing with the state. Also, they may face state penalties for late fees or franchise tax payments. Furthermore, the state can dissolve of the company’s administration. If that should take place, the company must seek to be reinstated.
In order to avoid all of these troubles, it’s important to make sure you have a complete knowledge of the compliance requirements and penalties so you can keep your business running smoothly and have peace of mind.