After incorporating a business or forming an LLC, prepare yourself for ongoing compliance requirements. Failing to regularly meet ongoing requirements in a timely manner can have big consequences for small businesses.
Internal requirements for LLCs and corporation
Business compliance requirements fall into two categories: internal and external. Internal requirements are actions that must be taken within the corporation or limited liability company by the directors and shareholders or members and managers, respectively. Although they are the most commonly overlooked, internal requirements must be documented as part of company records. It may be necessary to present these records when selling the company or in the event of a lawsuit.
- Corporations. Corporations (both C corporations and S corporations) have the strictest internal requirements, including holding initial and annual director and shareholder meetings, adopting and maintaining updated bylaws, issuing stock to shareholders, and recording all stock transfers.
- LLCs. While it’s not required for an LLC, it’s recommended that you maintain an updated operating agreement, issue membership shares, record all membership interest transfers and hold annual meetings of members and also of managers, if the LLC is manager-managed.
- Compliance kit. Many small business owners use a compliance kit to organize records. These include items such as sample bylaws or operating agreement, stock or membership interest certificates and transfer ledger, a corporate or LLC seal, and sample meeting minutes.
- Document templates. Templates for bylaws, operating agreements and meeting minutes can simplify the internal compliance process and are usually provided by your incorporation service provider if you incorporate online.
External requirements for LLCs and corporations
External requirements are primarily imposed by the state in which your business is incorporated and any state where it is registered to transact business (has undergone foreign qualification). State compliance requirements often include an annual state filing (annual report) and payment of a corresponding state fee.
There is also the beneficial ownership information (BOI) reporting requirement, a new federal filing requirement that applies to many LLCs and corporations.
Here are some things to keep in mind as you address your requirements:
- Annual reports. Most states require corporations and LLCs to file an annual report (sometimes called an annual statement), which allows states to track formed or qualified corporations and LLCs. Other states require a biennial statement. In either case, states typically require that a fee be paid when statements are filed. These range from $10.00 to $300.00 or more.
- Franchise tax. Some states also have a franchise tax—a fee paid to the state for the privilege of operating as a corporation or LLC in that state. States employ different formulas, which may be based on business revenue or number of authorized shares and par value, for calculating this tax.
- Registered agent. LLCs and corporations are required to maintain a registered agent in their formation state and in each state in which they are qualified to do business.
- Beneficial ownership information (BOI) report. Non-exempt business entities must file a BOI report with FinCEN (Financial Crimes Enforcement Network), a bureau of the United States Department of the Treasury). A BOI report contains information about a company and its owners. Reporting companies must also file an updated report for any changes to previously submitted information on the company and its owners. Learn more about filing a BOI report.
- Due dates for annual statements and franchise taxes vary by state. Some states connect due dates to the anniversary of the corporation’s or LLC’s formation or qualification. Other states set a particular due date for all corporation annual statements and another for all LLCs.
- Know the cost of these obligations. Because annual statements and franchise taxes represent ongoing requirements, you should research requirements prior to incorporating your business so that you can plan your budget accordingly.
- Initial reports. Finally, a few states such as California and Nevada also require initial reports/statements to be filed and fees to be paid within the months following incorporation. Your online incorporator or registered agent will let you know if your state has this requirement.
Penalties for noncompliance
If a corporation or LLC is sued and unable to show it met all corporate or LLC formalities and state requirements, a judge can rule that the company has been acting more like a sole proprietorship or general partnership. This can result in “piercing the corporate veil” meaning that limited liability protection disappears and leaves individual owner(s) assets vulnerable if a lawsuit judgment is made against the company.
There are also consequences on the state level that can happen prior to piercing the corporate veil. If a corporation or LLC does not comply with a state’s annual or ongoing requirements, that company is no longer in “good standing.” Each state has different parameters for good standing, and many impose late fees and interest payments on outstanding annual statement and/or franchise tax fees. Being out of good standing long enough may lead to administrative dissolution, in which all benefits of being a corporation or LLC are lost.
For reporting companies, violations when it comes to beneficial ownership information reporting can mean fines and even imprisonment.
Getting compliance assistance with BizFilings
We go the extra mile to ensure your business stays compliant and keeps its important "Good Standing" entity status by making it as convenient and easy as possible. We offer:
- Franchise tax & annual report filing alerts. Registered agent customers receive ongoing alerts for any state franchise tax or annual report filings that are due after you incorporate. We make it easy with a few clicks for you to file and keep your business in good standing with the state.
- Managed filing services. Registered agent customers can enroll in automatic filing of franchise tax and annual reports. A dedicated team monitors, updates your state reporting requirements and files on your behalf. Learn more.
- BizComply management tool. Our exclusive, account management tool lets you schedule and track all your company and compliance events, as well as email you reminders of upcoming state obligations, invoices and more.
- Prompt handling of official documents. We provide prompt and efficient handling of important state, tax and legal documents received on behalf of your company.
- Professional and discreet Service of Process delivery. We’ll email and digitally scan Service of Process documents to you for instant, viewing.
- Exceptional, friendly customer service. Available by phone, email or chat, our knowledgeable representatives are happy to answer questions you have about compliance, your account or placing an order with us.
Learn more about BizFilings services.