An international outbreak of an infectious disease is probably the last thing a company’s owners and managers want to think about. But as the current COVID-19 outbreak demonstrates, it happens. And a failure to prepare can devastate a business. And while you can’t prevent an event like the COVID-19 outbreak from happening, there are some things companies can do to increase the chances of weathering the storm. Ensuring compliance efforts are uninterrupted for both your domestic and international entities during this worldwide crisis is crucial for the future success of your business. Below are six steps that can help any business in the U.S. and abroad survive the current COVID-19 crisis and any future crises that may occur.
1. Form a statutory business entity.
COVID-19 and other natural or unnatural disasters can result in huge losses for businesses. Businesses owned by a statutory entity such as a corporation or LLC are generally in a better position to obtain the funding they need to stay afloat or rebuild, than are businesses owned by individuals. Another benefit of forming a statutory business entity is that the entity is liable for its own debts. So if, for example, COVID-19 prevents a corporation or LLC from fulfilling its contracts, the corporation or LLC is liable — not its shareholders or members.
2. Make sure the corporation, LLC, or other statutory entity stays in good standing.
A loss of good standing can also negatively affect a company’s ability to obtain the funding it may need to tide it over while the crisis is ongoing or rebuild if necessary once it is over. With everything else going on it can be easy to forget that annual reports still have to be filed and annual fees paid to stay in good standing. And if they aren’t, the company will have to pay penalties and interest in order to be restored to good standing and can even end up being administratively dissolved due to non-compliance.
3. Set forth contingency plans in the governing documents.
Governing documents such as an operating agreement, partnership agreement, or shareholder agreement can set forth, in advance of any disaster, what steps the company should take. This could include, for example, naming a replacement in case a key manager, officer, or employee is unable to work; naming a new registered agent if the company had appointed an individual instead of a professional registered agent, and that person will be unable to fulfill his or her duties as registered agent; requiring additional capital contributions from owners in times of crisis; and providing if, and how, employees will be paid in case of a temporary shutdown.
Communicating these plans to employees is critical. “To reduce anxiety in the workplace, it’s important to ensure employees have access to trustworthy and easy to understand information about coronavirus,” said Priti Shah, Vice President, Products and Solutions, Clinical Effectiveness, at Wolters Kluwer, Health. “For example, UpToDate, a trusted resource used by clinicians around the world, provides free access to coronavirus information written in plain language for the average health consumer and it can be shared on social networks, emailed or printed.”
4. Consider opening up offices in unaffected areas.
COVID-19 has affected some states more than others. This is often the case with natural disasters such as wildfires, hurricanes, or floods. Large companies — or other businesses that are able to — can maintain the continuity of operations by opening up offices in unaffected states.
However, they must remember that corporations, LLCs and other statutory business entities expanding into states other than their formation state (which are called “foreign” states) must qualify to do business in the new state. They will probably have to obtain business licenses in those states as well. In addition, if the crisis results in the company ceasing to do business in a foreign state in which it was previously qualified, it should formally withdraw from that state.
5. Update public records when necessary.
If COVID-19 forces a company to make certain changes, such as a change of registered agent, change of registered office, or change of principal office, the records of the state filing office will have to be updated. This will require the filing of documents such as an amendment to a formation document, qualification document, or annual report or a certificate of change. A new principal office may also require a filing to update the business licenses, assumed name certificates, or other records. It is particularly important to remember to update the name and address of your registered agent if that changed. A failure to do so can lead to administrative penalties and default judgments if the business is sued.
6. Partner with a compliance company like CT to assist with compliance tasks.
A global compliance company like CT can be very helpful in critical situations like the COVID-19 outbreak. CT can, among other things:
- Provide a professional registered agent to help ensure that service of process can still be received and forwarded to the proper person even if the business has to close for a period of time. This can be especially important in times of crisis when a company may be unable to fulfill its contractual obligations or may have employee-related concerns or other issues that can lead to litigation.
- Manage a company’s annual report and business license filings in all domestic and foreign states, as well as internationally to make sure the company stays compliant and in good standing.
- Assist with the formation and qualification of a corporation, LLC or other statutory entity.
- Assist with the filings required to update public records.
- Assist with the completion of global transactions — which can be very helpful when a company has to close down an international office or cannot travel to affected countries. You can rely on our local, on the ground experts to support your compliance needs during heavily mandated travel bans.
These six steps cannot guarantee that a business will come through a crisis situation like COVID-19 unscathed. But they can shift the odds in any business’ favor.