How to make sure your SMB is playing by the rules
Businesses are governed by myriad rules and regulations. Even the seemingly least complicated ventures require many applications and filings just to get started.
Once you are conducting business, the requirements continue, many on a yearly or biennial basis. Safeguarding your company’s compliance with all applicable regulations is a weighty responsibility, as failure to maintain good standing can have serious consequences.
Compliance is an umbrella term that covers many types of financial, legal, and ethical regulations and standards a business must meet to limit its exposure to risk. It can refer to everything from health and safety standards to tax filings. Generally, the larger and more complex your business is, the greater the number of regulations apply.
For these purposes, we will narrow our focus to business compliance; specifically, the requirements the owner of a small to medium-sized business (SMB) must satisfy to operate in good standing.
Internal vs. external compliance
Internal compliance refers to actions that should be taken by a company’s leadership after incorporation and documented as part of the company’s records. Company structure determines the strictness of these requirements, and if they are also regulated by the government.
Corporations (both C and S types) must name directors and shareholders, issue detailed company bylaws, and record all stock issuance or transfers. This documentation is not mandated for a Limited Liability Company (LLC). However, it is recommended that the LLC maintains an operating agreement signed by all company officers.
Internal compliance is essential for transparency and can protect your company in the event of a lawsuit.
External compliance refers to the need to satisfy all relevant regulations imposed upon your company by federal, state, and local governments.
Identifying which rules apply to you
The number and types of regulations with which your SMB must comply will vary based on location, industry, and business structure.
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Location: Your business will be subject to federal, state, and local laws based on where it is incorporated and where it is conducting business. For example, a business incorporated in Delaware but operating in New York City must file documents and pay fees or taxes to maintain good standing in Delaware, New York, and New York City.
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Industry: The industry classification of your business will determine which permits, licenses, and standards apply. A construction company, for example, will need to obtain the licenses and permits required by its home state, and it must also comply with federal OSHA standards.
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Business structure: The type of business you are will determine the registration forms you must file upon startup, the liability of all involved parties, the taxes you pay, your ongoing compliance requirements, and many other details. The LLC and the S Corp follow different rules.
The compliance calendar
The amount and frequency of filings necessary to keep your SMB in good standing will vary, but there are some standard compliance events you will need to track:
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Tax filings – federal and state income and employer taxes and filings
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Annual report or biennial statement and statement filing fee – state report and payment required either on anniversary of the initial filing date or on a set date
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Proof of compliance with the Affordable Care Act – federal requirement for business employing more than 50
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Franchise tax filing – some states collect this fee from LLCs and corporations
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Licenses, permits, or certifications – federal and state requirements, determined by industry
Some states also require the following:
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Initial reports – statement and fee submitted shortly after incorporation
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Articles of Amendment – required if you have made any substantial changes to your company since incorporation
How to ensure and maintain compliance
Many SMB owners prefer to delegate regulatory compliance to trusted external advisors from the very beginning. For your own protection, it makes sense to enlist legal and financial experts to guide you through the initial decisions about corporate formation, tax strategies, and regulatory requirements.
Once your business is underway, it’s easy to underestimate the ongoing diligence maintaining compliance requires. It’s prudent to determine how best to handle this substantial responsibility early in the life of your company.
Do you have the resources to effectively manage your company’s internal documentation and calendar of external filing deadlines? If not, outsourcing is a practical option.
Franco Blueprint can help. We bring peace of mind to SMB owners by reducing financial and legal risk and allowing them to focus on growing and managing their business. We can advise your company through the requirements of formation and help it maintain good standing throughout its existence.
Reach out for a free consultation with one of our experts today.