How to Keep Your Business Legally Compliant
BY: AUSTIN ANDRUKAITIS ON THURSDAY, AUGUST 01, 2019
Whenever you start a business, you have to make sure to follow the right rules and regulations in order to succeed.
There are a variety of state and federal laws that apply to certain business structures. Not to mention, if your business operates within a specific industry, you’re also required to have different certifications and licenses on-hand, as well as promoting workplace and safety laws.
Altogether, compliance isn’t about bombarding your business with too many tasks, and instead, it’s designed to keep your business protected against any serious issues that could wreak havoc down the line.
Your goal is to manage your business in a way that makes your life easier, so if you’re ready to streamline your operations, here’s how you can keep your business legally compliant at all times:
Why Does Compliance Matter?
More than anything, the reason why compliance for business matters is to prevent costly legal trouble.
On both a state and federal level, if you withhold information about your business or fail to disclose certain dealings and decisions from governing agencies, the result could be a financial and personal mess for everyone involved. That being said, legal safety should be held in the highest regard because not only does it give your business the confidence to succeed, but it shows your investors, partners, and customers that you have a grip on how to properly manage your business and support it in a way to help it expand.
Whether it’s keeping a checklist of all the necessary responsibilities and due dates for certain information, or maintaining a clean paper trail of invoices and receipts, following the rules for your business structure promotes long-term protection, builds your reputation within an industry, and saves you money. Plus, once you establish a routine of keeping things in order, integrating new regulations and standards becomes automatic.
Once again, maintaining compliance all depends on your business structure, the state and industry you operate within, and what types of goods and services you provide. In some cases, you may not have to file any compliance information, but it doesn’t hurt to know what best practices can keep you safe.
What Business Structures Require Compliance?
Depending on the type of business structure you choose, there are two types of entities that dictate your level of compliance and what kind of documentation you’ll need to report:
- Common Law Business Entities: Sole Proprietorships and General Partnerships
- Statutory Entities: Limited Partnerships (LPs), Limited Liability Partnerships (LLPs), Limited Liability Companies (LLCs), and corporations (Inc.)
Common Law Business Entities
Common law business entities represent business structures that don’t require any formal paperwork or filing with the state in order to function.
For example, if you run a side business online selling artwork or handmade crafts, then you are the sole owner and you don’t have to take any action to further legitimize your operation. The same rules apply if you run a studio space with your friend and you both design and sell goods and split the profits. In this case, you’re operating as a partnership and you can continue to use your personal information to file taxes and keep your business at a basic level.
Operating as a common law entity is perfectly fine if your business is straightforward and doesn’t have too many working parts. In fact, since 1980, forming corporations has made a significant decline, and sole proprietorships have risen to over 30 million since 2014.
Needless to say, lots of people run their business as a sole proprietorship or partnership without running into too many complications. However, maintenance gets a bit trickier when you dive into formal business structures.
Aside from running a business by yourself or with a partner, statutory entities represent businesses that are governed by state laws and offer an added layer of protection.
For instance, if you choose to run a restaurant with several partners and set it up as an LLC, the business structure offers a separation between personal assets and assets of the company. This means that if the restaurant fails due to a loss of investment or poor performance, only the assets of the business are at stake, rather than the personal assets of the individuals in charge.
This certainly sounds like a great deal for anyone looking to reduce their level of personal risk, but gaining these kinds of protections from the state warrants a variety of documentation and cooperation in order to take advantage of the benefits.
State Filing Requirements to Understand
Keep in mind, each state has its own registration laws that you must comply with when starting and running a business, although there are several commonplace requirements that generally apply to everyone.
Primarily, state filing requirements boil down to submitting the correct documentation for your business with the state and hiring a registered agent to be your main point of contact. Within those two tasks, here is a rundown of what information you’ll have to submit to initiate and maintain compliance:
Articles of Incorporation or Articles of Organization
To officially get your business up and running with the state, you will have to submit your articles of incorporation or articles of organization depending on your business structure.
For LLCs, state’s require you to file your Articles of Organization that outlines the following information:
●Your business name
●Contact information for your registered agent
●Your business address
●Your business’s contact information
●Management status (member-managed or manager-managed)
●Statement of purpose
●The duration of your formation (for a period of time or perpetual)
For C Corporations, S Corporations, B Corporations, and limited partnerships (LPs), that state requires you to file your Articles of Incorporation that outlines the following information:
●Your corporation name
●Your board of directors
●Number of shares approved
●Contact information for your registered agent
●Contact information for each owner or business partner
●Statement of purpose
●Financial reports to outline revenue or potential revenue
As you can tell, the information one provides in both cases is similar, but the biggest difference is that one is meant to form an LLC, whereas the other is meant to form a corporation.
Annual Report or Biennial Statement
These documents can be submitted on the anniversary date of when your business was formed, or in some cases, a state chooses the date for you to submit paperwork by. In any case, the information in either report or statement is typically the same except that an annual report is submitted each year, whereas a biennial statement is submitted every two years.
For either filing, you should include…
●Your business name
●Your business address
●Your Department of State Number (DOS) (if applicable)
●A list of managing members or directors
●Your registered agent’s contact information
●A Statement filing fee (varies from state to state)
Once again, your state will inform you about which form to submit and what information to include, so always be sure to check with their guidelines to avoid any hiccups. In addition, most document filings can be done online through your secretary of state’s office, which makes the process much easier to execute.
Franchise Taxes and Initial Fees
Unfortunately, running a business comes with a hefty price tag, and some states start tacking on payments with franchise taxes and initial fees as soon as you get started.
In addition to the standard fees of filing your articles of incorporation or articles of organization (which varies by state), some states also charge a franchise tax fee which accounts for doing business as an LLC or corporation in that area. Typically, the franchise tax rate is between $800 and $1000 every year, so it’s important to plan ahead for this charge and file it on-time with your annual report or biennial statement renewal.
After your franchise taxes, there are government filing fees that your state may incur based on the type of business your incorporating. In general, a state may charge you anywhere from $50 to $200 on top of your state filing fees, so just submitting information can rack up a substantial bill.
Lastly, many people choose to hire a third-party service or attorney to register their business and incorporate. Of course, you can certainly act as your own registered agent with the secretary of state and handle your documents and compliances on your own, but doing so often proves to be a hassle for business owners and can lead to major issues if mistakes are made along the way.
Typically, hiring a service like LegalZoom or IncFile to handle your formation will run you anywhere between $50 and $500 a year. If you choose to go with a traditional attorney to navigate your registration and compliance needs, they may charge you a one-time fee between $500 and $700. However, the amount can easily skyrocket to thousands of dollars if you’re not careful to prioritize your attorney’s time and provide them with as much assistance as possible to make the process quicker.
Whatever route you decide to go with, just make sure to find a solution that’s affordable for you and reduces the chances of you facing a critical mishap. You want your business to run smoothly for everyone involved, and more often than not, smooth sailing costs money.
Articles of Amendment
In the event that you need to change information about your business, you will have to file an article of amendment to inform the state.
Articles of the amendment should be submitted to the secretary of state’s office if…
●Your business address changes
●Your business name changes
●You redistribute or renegotiate shares of your company
●You add or remove members of your board of directors
Any kind of major shake-up that takes place in your business usually warrants a notice to the state. Something to also keep in mind is that some states may charge you a minimal fee to submit your amendment.
Federal Filing Requirements to Understand
Overall, there aren’t too many federal filing requirements that businesses face aside from paying their federal taxes.
As long as your business complies with its federal tax duties, such as filing income and employer taxes, the U.S. government leaves a lot of jurisdiction up to the states to handle. With that in mind, there are a few requirements to consider that are specific to health insurance, industry license and permits, and federal workplace laws.
Compliance with the Affordable Care Act
With the Affordable Care Act passing in 2010, the federal government requires that businesses with over 50 employees must report that they provide health insurance coverage to the Internal Revenue Service (IRS) in order to stay compliant.
Along with sharing this information to the IRS, businesses are required to issue the following statements to each employee:
●A list of insurance carriers that provide coverage
●Sponsored plans for self-insured group health coverage
●Government agencies that offer coverage from government-sponsored programs
To read more about the Affordable Care Act and how businesses must comply, check out this link from the IRS.
Federal Licenses and Permits
According to what industry your business operates within and what goods and services you provide, you’re required to hold different federal licenses and permits to ensure that your activities are protected under U.S. regulation.
There are various business activities that you may fall under, and each one comes with its own issuing agency to work with and apply for. For instance, if you manage a winery, you’ll need sales permits from the Alcohol and Tobacco Tax and Trade Bureau (TTB), whereas if you run a radio station with paid advertisers, you’ll need permits and compliance with the Federal Communications Commission (FCC).
To give you an idea of what to expect, here is a list of the most common business activities and issuing agencies to apply with.
Federal Workplace Laws
Finally, another area to help you maintain compliance and keep all employees informed of your business activities is to properly educate and display federal workplace laws.
Every business must abide by certain laws regarding marketing and advertising, copyright principals, workplace rights, and workplace health and safety information. In general, the federal government will send you information regarding how to properly showcase these resources at your place of business and to your employees. However, the Small Business Administration (SBA) also offers some useful links to help you understand each requirement.
Best Practices for Ensuring Compliance for Your Business
Now that you have a better idea of what compliance is all about, your next step is to develop a plan to maintain good standing and plan for the future.
With the right team in place to organize your management and workflow, staying compliant should be fairly simple. On the other hand, if you are having trouble getting started, here are a few best practices to implement:
●Host a seminar or training session to inform owners or corporate members about compliance schedules and deadlines for certain information
●If you lack experience as a registered agent, hire an attorney or third-party service to manage documentation and deadlines for you
●Train employees to follow organizational policies and encourage them to share ideas and opinions about issues or wrongdoing
●Keep a master log or separate database for compliance materials, such as your articles of incorporation and article of organization, filed amendments, your statement of purpose, bylaws, copies of financials, annual reports, biennial statements; anything related to the compliance of your business should be organized and accessible
●Have monthly check-ups with your attorney or registered agent to stay on top of important dates or upcoming fees
●Study on your own to better understand compliance issues and procedures, or even sign up for a seminar or workshop to gain insight on important changes or updates for your industry
Once you adopt a system and stick with it, you’ll be much better suited to handle any unforeseen problems that arrive. Remember, staying compliant is all about staying ahead of the curve, and these tips should keep you and your team prepared for anything.
Don’t Be Afraid to Seek Assistance
You may worry that state and federal governments are out to penalize you if you make a mistake, but the truth is that government agencies that maintain compliance are made to be in service of you and your success.
Along with your secretary of state’s office or helpful guidance from places like the SBA or third-party services, you should never be afraid to seek assistance and find ways to remedy any issues. Even if you’ve made a major compliance mistake that needs correcting, it’s best to reach out for assistance right away than to wait for the government to send you a disciplinary notice, or worse yet, an expensive fine that could hurt your business in the long-run.
Waiting until the last minute or blaming your disobedience on not knowing the rules is no excuse. There are plenty of resources at your disposal that can help you succeed, so take initiative and put your business on the best course of action today.