Growing Your Business? Look Out For These Legal Compliance Triggers
ComplianceJanuary 31, 2024

Growing your business can trigger legal compliance risks

When growing a business, you can expect to deal with both obvious and unanticipated risks. Strategies that keep you innovative, relevant, and competitive can also bring new and sometimes unexpected challenges, including compliance risk.

What is legal compliance for a business?

Legal compliance, also referred to as corporate compliance, entails your business meeting or following certain laws and regulations at the federal, state, and local levels. This is especially true when you have formed a business entity such as an LLC or corporation. These can include obtaining necessary business licenses and permits, filing annual reports, and maintaining a registered agent – the latter two of which are required by nearly every state LLC or corporation law.

As your business grows and evolves, compliance requirements for an LLC or corporation can change over time. For instance, if you add employees, expand into new states, change your business entity type, engage in a merger or spin-off, and more, can all create legal compliance challenges that must be managed and maintained – adding to already stretched resources.

For more information, read: A guide to business entity compliance and governance.

Image of the Growing your business can trigger compliance risks infographic
Growing pains: Balancing legal compliance challenges with business growth

Compliance risks to your business

If your business entity fails to comply with one or more compliance requirements, the state may determine that your business entity has "fallen out of good standing". If not remedied quickly and appropriately, this change of status can be quite serious and damaging – both to the business and to you personally as owner(s) and representative of the business entity.

For example, if you own a corporation, LLC, or other entity, and it fails to file an annual report or fails to pay franchise taxes, your business entity could lose good standing status. If non-compliance continues for a certain period, a state can administratively dissolve a domestic entity or revoke the authority to do business as a foreign entity. Other grounds for dissolution or revocation exist in some states, such as failing to maintain a registered agent and office.

Your business is also at risk if it fails to renew a business license or permit. Non-compliance with licensing laws can cost you the right to conduct the business for which the license was required.

Other potential consequences of noncompliance and loss of good standing, include:

  • Loss of name
  • Loss of access to courts
  • Penalties and fines
  • Personal liability
  • Tax liens
  • Inability to register your business in other states

Your company may also suffer reputational risk, such as a devaluation of its brand, difficulty obtaining financing, difficulties hiring talent, or increased capital costs.

Another risk is non-compliance with the Corporate Transparency Act (CTA) requirements. Willful failure to file an initial, updated, or corrected beneficial owner information (BOI) report or providing false or fraudulent information can result in escalating fines and criminal penalties.

Understanding which aspects of growth trigger compliance requirements and what regulations apply to your business or business entity is critical.

To help you stay compliant, this infographic breaks down growth activities that prompt compliance attention and changes.

Challenges with maintaining compliance

Staying in compliance is not always top of mind and keeping track of changing regulations and requirements can be burdensome. Furthermore, the bulk of federal regulatory compliance activities are sometimes handled by small business owners themselves.

Moreover, many business owners aren’t sure which updated regulations (such as the CTA’s beneficial owner information reporting requirement) apply to their business. Still, these regulations must be reviewed to determine which apply, further adding to the challenge of balancing compliance with business growth.

A better way to handle compliance

Companies in growth mode should focus on things such as cash flow, finding the right talent, and business operations. Your business shouldn’t have to pay the price in administrative burden and time to stay in good standing.

Outsourcing business compliance can help take the pressure off internal resources. Working with a full-service management provider allows you to focus on growing your business while keeping up with changing compliance regulations.

Learn more

CT Corporation manages annual report requirements, helps to secure the appropriate licenses and permits, performs registered agent and beneficial ownership reporting functions, and helps customers adhere to all jurisdictionally mandated obligations to operate in good standing, throughout the life of your business.

Contact us to learn more about how CT Corporation can help with your compliance needs.

The CT Corporation staff is comprised of experts, offering global, regional, and local expertise on registered agent, incorporation, and legal entity compliance.

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