What business changes trigger a compliance obligation?
To help you make informed decisions and keep your business in good standing, it is important to understand which business compliance tasks apply to your company as it evolves. Here are some examples of when a compliance action needs to be taken during the various phases of a business's lifecycle.
1. Starting a new subsidiary or branch
The term subsidiary refers to a company that belongs to another company, known as a parent or holding company. The parent company has or controls more than half of the subsidiary’s stock and maintains a controlling interest in the subsidiary.
A subsidiary is often an option for companies looking to grow the existing business while reducing risk. Creating a subsidiary involves many compliance steps and ongoing maintenance of those obligations, including choosing a business structure, checking if the name is available, filing an initial Beneficial Ownership Information report if the subsidiary meets the definition of a “reporting company”, and obtaining the right licenses and permits.
2. Running the business
Today’s regulatory environment is increasing in complexity. Federal, State and local governments are expanding compliance requirements, raising fees, and increasing enforcement efforts.
Because regulations are constantly in flux and your business is ever evolving, compliance actions — such as filing annual reports, filing and paying franchise tax, filing Beneficial Ownership Information reports, and renewing or updating business licenses — can easily slip through the cracks. Even the most thorough business can be overwhelmed by new and changing requirements.
3. Growing the business
Striving for business growth is constant. But growth strategies also bring new and unexpected compliance obligations. Sample compliance tasks include:
- Filing foreign qualification/registration
- Appointing a registered agent in a foreign state
- Conducting due diligence searches
- Appointing directors and reporting changes
- Filing updated Beneficial Ownership Information reports (if any of the reported information about the company or its beneficial owners changes)
4. Business dissolution or withdrawal
The difference between dissolution and withdrawal of your business is important to understand. Knowing the difference is essential for filing the proper paperwork and staying compliant with the law.
- Dissolution: When you terminate the legal existence of your company — wherever you do business — you must file for corporate dissolution in the state where your business was originally formed.
- Withdrawal: If you wish to end your right to do business in a particular state, you must file a withdrawal. Your company can continue to exist and do business elsewhere.
If you fail to dissolve or withdraw a business entity, your business will remain on public record and must still satisfy compliance obligations, including paying franchise and state taxes, and filing annual reports. Failure to complete these tasks can result in administrative dissolution. Administrative dissolution can expose your company to business identity theft and is a key reason why you must take the appropriate steps to formally dissolve or withdraw your business(es).
Key compliance tasks associated with dissolution or withdrawal include:
- Filing articles of dissolution
- Filing withdrawal of qualification/registration (in foreign jurisdictions)
- Canceling business licenses
- Filing an updated Beneficial Ownership Information report (if any of the reported information about the company or its beneficial owners changes)
Risks of noncompliance
The cost of noncompliance with business laws and regulations is becoming increasingly severe. Regulators and agencies can impose harsh fines and penalties or even close your business. You may also incur reputational risk, including a de-valued brand, reduced profits, difficulty securing financing, challenges recruiting talent, and an increased cost of capital.
To help you stay in good standing, check out this infographic. It maps the events that trigger one-off and recurring compliance tasks — at each stage of the business lifecycle.
CT Corporation can help
Outsourcing business compliance can help you take the pressure off internal resources. By working with a full-service management provider, you can free up your time to focus on growing your business while ensuring you keep up with changing compliance requirements.
For more information on CT Corporation services and how we can streamline your compliance needs, please contact us.