Keeping your company compliant with local, state, and federal laws is a crucial aspect of doing business, whether you’re forming an LLC in California or a corporation in Delaware. While such requirements might not be things that directly turn a profit, failing to adhere to them can mean being prevented from operating in any kind of capacity. Even if you don’t get shut down, fines, penalties, and fees can keep you from generating the profits that you seek.
There are many benefits to registering a company as an LLC or corporation since you can separate assets and save on taxes. However, there are many compliance rules and regulations that you have to follow. If you don’t, the potential penalties and lawsuits can hurt your business. Just facing legal action can detract from your brand image and reputation, but staying compliant starts with five steps you should know.
5 Tips For Legal Compliance
Legal compliance for a business can take many different steps based on your municipality and state, but these five are great starting points:
- Choose Your Company Structure: If your company hasn’t even launched yet, then you still have the chance to decide between an LLC structure or a corporation. Each has a particular set of benefits, but there are also compliance rules that go with them. If your business is already in existence, see if changing your structure is possible and whether or not it would make compliance matters easier.
- Handle the Paperwork: A lot of compliance revolves around reporting requirements, ranging from licensing forms to annual reports. Create them, file them on time, and store them safely for future use. Digital copies are useful when saved in the cloud in the event physical copies are lost.
- Know the Local Employment Laws: Employment law can cover local, state, and federal laws. They can cover everything from human resources to employee hiring to professional evaluations and termination matters. Failing to be in compliance with employment laws might result in lawsuits, reputation hits, and a negative impact on employee morale.
- Mind Your Taxes: This should be obvious, but a lot of new businesses struggle here. If your growth has outpaced your ability to stick with the bookkeeping, then hire an accountant to keep things organized and compliant. Preventing issues is a lot easier than trying to clean them up later on down the road.
- Monitor Your Licenses: If you haven’t done it yet, register your business with all applicable authorities and government departments. If you’ve already done so, be sure your registrations and licenses are current. Keep your list of contacts current, too. Be aware of pending changes to rules, regulations, and laws that might impact your business.
If you need more tips, then Forbes has a helpful list from numerous experts in the field of business.
Do You Need a Bond?
Establishments and organizations in certain industries might need to get a Surety bond. In particular sectors, it might even be a requirement. Such a bond is usually a three-party contract. You would be designated as the principal as the bond purchaser. The party needing your service or product is known as the obligee for asking you to get a bond.
An insurance company that backs the contract is known as the actual surety. The bonding company has to be compensated for the risk involved with underwriting the surety, so you have to pay a small annual percentage of the total bond amount. In effect, the surety offers the obligee a guarantee for how well your work performs for them.
Even though insurance companies are often involved with Surety-related bonds, such a bond is not technically insurance. An insurance policy will protect you and your business, but a bond will protect consumers, government authorities, and the general public.
This is the kind of thing that isn’t just a matter of legal compliance but can also instill tremendous trust among prospective clients who might choose you because they know you’re reliable. For that matter, it can also set a standard of accountability and professionalism among your own team members.
Compile All Requirements
Starting off with five steps toward business compliance gets you going, but eventually, you need to be in compliance with all requirements. That means you need to know all of them. The Small Business Administration can help you make that checklist.
Internal requirements are easy to miss when you’re focused on exterior requirements first and foremost. Your external requirements are likely to revolve around paying taxes and filing paperwork. Your internal requirements should focus on keeping documents and company records in the event of legal actions or selling your company.
If you choose to structure as a corporation, then you will face the strictest set of requirements. You’ll need both initial and yearly meetings for directors and shareholders. There will be meeting minutes recorded, bylaws adopted and maintained, stock insurance, and records of stock transfers.
An LLC is not as strict with internal requirements. Still, an updated operation agreement is a common recommendation that you should follow. Membership shares must be issued, and you’ll need to record membership interest transfers. Annual meetings should also transpire so that everyone can focus on important matters and communicate with one another.
Legal Compliance Really Does Matter
Keeping your business legally compliant matters a great deal. It provides your company with two serious advantages. First of all, you have legal protection from losing your right even to do business so you can avoid non-compliance penalties that can seriously eat into your profits.
Second, your company stays in a good light, which is crucial not just to customers, but also financiers, business partners, and internal stakeholders. You’ll also save yourself a lot of stress and potential legal fees so you can focus on making money and customers happy.
To be sure your company is always in compliance and good standing, be constantly sure that you know the applicable laws and take steps to adhere to them.