Whether you’re a new startup company that’s incorporated your business or formed an LLC, or an established enterprise, you should most definitely be aware of compliance requirements.

It is a grave error not to address the requirements, and can land you in a lot of legal trouble. Small business owners often neglect them, and pay for their mistakes later. It’s mandatory to meet the compliance requirements if you do not want your business to suffer.

In fact, if the requirements are not met , or are not completed in a timely manner, the company can lose its status as a corporation or LLC. That spells danger for the company, because it means the owners are no longer protected through limited liability, which means their own assets can be seized and sold to pay off the company’s debts. If you want to avoid this situation and protect your limited liability, it’s necessary to protect y our corporate or LLC status

What are the requirements?

  • Internal requirements- the actions taken by the shareholders, directors and managers within the LLC or corporation are termed as internal requirements. They should be documentary evidences that are filed in the company records. These are most commonly ignored especially in LLCs as it’s not compulsory for them. However to have a record of minutes, it’s necessary for the LLCs to incorporate these requirements into their schedules. However, being mandatory, corporations usually have very stringent rules as regards the internal requirements. Updating bylaws, issuing stock to shareholders, annual or regular meetings of the directors and owners as well as subsequent stock transfers are done religiously in corporations.
  • External requirements- the requirements imposed by the state in which the LLCs or corporations are formed, are termed as the external requirements. Here deposition of annual state filing and payment of the respective state fees are mandatory. An annual statement helps the states to keep the information on the corporations regularly updated. It also decides whether the respective LLC or corporation deserves the status or not.

It is usual practice to use a Corporate Kit or LLC Kit to organize the records. There are sample bylaws, agreements of operation, stock interest certificates, an LLC or corporate seal, sample meeting minutes and a transfer ledger included in the kit.

When the corporations or LLCs return the statements, the state requires fees to be paid whether the statement is annual or biennial. Each state differs on the amount to be paid and it ranges from $10 to $300. It also depends on the type of business.

To be a qualified LLC or corporation in a particular locality, some states impose a franchise tax to be paid along with the statement fees. The revenue generated by the corporation or LLC usually decides the fees. It also depends on the value of your business to the market and number of legal shares. The owners therefore need to budget in advance before incorporating their business. They also need to know the dates set for payment of these fees, taxes and statements.

What are the consequences of ignoring the requirements?

It’s impossible to save your corporate or LLC status unless the requirements are fulfilled. The judgment can be passed that limited liability protection can no longer be given to the owners as they have failed to submit the statement and/or fees. This is termed as “piercing the corporate veil”. Failure to meet the requirements can never leave the company in good standing with the state. On outstanding fees or franchise tax, the state may impose a penalty. This can further lead to dissolution of the administration by the state. If such a situation occurs, the company then needs to be reinstated.

To avoid a great deal of trouble, make sure you have a thorough knowledge of the compliance requirements and consequences – then you can build your business on a firm footing and with peace of mind.

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