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Compliance Requirements and Consequences
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.
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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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