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ComplianceFebruary 12, 2024

What is corporate regulatory compliance?

Regulatory compliance has to do with a business entity meeting or following certain laws and requirements enacted by federal, state and local governments. Corporate regulatory compliance has to do with those requirements imposed on corporations.

Today’s regulatory landscape has become increasingly complex, as state and local governments expand compliance requirements, increase fees and increase enforcement efforts. And even the federal government, which in the past has generally left corporate compliance to the states, is enacting laws imposing reporting requirements on corporations. Even the most dedicated and conscientious owners or officers of a corporation can find it overwhelming to keep up with the constant onslaught of new and changing requirements.

If you’re in the position of ensuring that issues related to corporate compliance don’t bring your business to a screeching halt, read on. We’ll present you with an overview of key compliance areas and risks, plus pointers on setting up systems and applying best practices that could help your company to lower or eliminate those risks.

What are basic regulatory compliance requirements?

Requirements for corporate compliance are in a constant state of flux as a result of changing laws and the various actions a business takes. Here are some critical areas of compliance –

  • Recordkeeping. Maintain records, such as the articles of incorporation, bylaws, minutes of directors’ and shareholders’ meetings, tax returns, etc., as required by state corporation law.
  • Service of process. Have your plan in place for responding to lawsuits. Make sure your registered agent and anyone else authorized to receive service of process on your corporation’s behalf know what to do with the documents if they are served.
  • Corporate expansion or contraction. Be aware of state-related business activities—such as expanding into new states or withdrawing from states where your corporation previously did business, that can trigger compliance obligations.
  • Other entity changes. File required documents for changes in corporate names, authorized shares and more. These changes won’t be effective unless or until these filings are made.
  • Annual report filings. Meet deadlines for filing your state-required reports and paying state fees.
  • Beneficial Ownership Information reports. File an initial Beneficial Ownership Information report if the corporation is not exempt and file updates when necessary.
  • Business licenses. Obtain and maintain your required state and local business licenses.
  • Registered agent representation. Appoint and maintain your corporation’s registered agent in your corporation’s home state and in every “foreign” state in which your corporation qualified to do business.
  • Tax reporting and payments. Make timely and accurate tax filings and payments of any franchise, income, sales and use, or other taxes.

Understand compliance risks that can cause a loss of good standing

Your corporation has certain responsibilities to the state in which it was incorporated, as well as the states where it qualified to do business. These are imposed by those states’ corporation law. Failures to meet these responsibilities can bring a variety of penalties.

If your corporation fails to properly comply with its annual or biennial reporting requirements, or paying its state franchise taxes, then it is deemed to have “fallen out of good standing”. In some states, noncompliance with other statutory requirements, such as a failure to maintain the registered agent and office, can also result in a loss of good standing. The implications of the change in status from being in good standing to being delinquent, or not in good standing, if not remedied quickly and properly, can be quite serious and damaging—both to your business and to you personally as the owner of that corporation and the person doing business on its behalf.

A state will not issue a certificate of good standing to the corporation, which is proof of good standing that is needed for various transactions. And continued non-compliance can result in the state administratively dissolving a domestic corporation or revoking its authority to do business in a foreign state.

How a change in status can impact your business

Should your corporation fall out of good standing, your business operations can be impacted in a number of direct and indirect ways:

  • Possible loss of access to courts. If you need to take legal action, for example, to enforce a contract, you may be out of luck.
  • Inability to pursue new business. Many businesses require proof of good standing for bids, RFPs and other opportunities, in an effort to lower their risks.
  • Difficulties in securing capital or financing. Lenders equate a loss of good standing with risk and may deny financing as a result.
  • Imposition of tax liens. Non-payment of taxes can also affect your relationship with lenders, as tax liens generally take priority over other types of liens.
  • Loss of the right to your corporation’s name. You could lose the right to operate under your company’s current name, because other entities may be able to claim that name while you are not in good standing.
  • Fines and penalties. State and local governments impose and collect fines and penalties on non-compliant entities.
  • Personal liability. A state may hold officers, directors, or employees personally liable for acting on behalf of a company with “revoked” status.

Understand other corporate compliance risks

Federal, state, and local laws also impose compliance obligations that must be met and impose penalties if they are not met. Most businesses are required by federal, state, and local laws to obtain business licenses and permits. Noncompliance can bring monetary penalties for the corporation that owns the business, personal liability for those doing business on its behalf, and an inability to enforce a contract made while not having the proper licenses.

States also require corporations doing business under an assumed name to register the name and impose monetary penalties for noncompliance, as well as loss of access to the courts. Another compliance requirement is to register the corporation to do business in foreign states. A corporation transacting business without authority to do so cannot bring an action in the state’s courts, is subject to monetary penalties, and in some states, the individuals doing business on its behalf can also be penalized.

A federal law called the Corporate Transparency Act requires all corporations to file a beneficial ownership information report with the Department of Treasury’s Financial Crimes Enforcement Network, unless the corporation qualifies for an exemption. A corporation is also required to file an updated report when the information it reports about the company or its beneficial owners changes. Civil and criminal penalties can be imposed for violations of the Act.

Next Steps for Your Business
Is your company required to file a beneficial ownership report?

Implement a compliance program and apply best practices

Obviously, prevention is the best medicine. The following best practices could help you lower your risk of exposure to corporate-compliance-related problems. How you implement them depends on your business and its unique features. Note that working with a full-service registered agent gives you the option of taking on all, some, or none of these tasks yourself.

  • Monitor. Check your corporate records – preferably every month – to confirm that your corporation’s information is listed properly on the public record in each state in which it is on the public records. Also, monitor new laws that could impact your business.
  • Schedule. Know the deadlines for filing forms or reports and paying taxes or fees in your corporation’s home state and in each of your corporation’s states of qualification. Make sure the person responsible for meeting those deadlines is aware of them well ahead of time.
  • Communicate. Create a system for communicating required deadlines, status-change triggers or other issues among the people tasked with compliance responsibilities, such as management, accounting, or legal staff.
  • Centralize. Keep a master compliance calendar that can be seen by all the affected stakeholders in your company. Maintain a single, secure repository of entity records and related documentation, preferably one that is linked to your compliance calendar and communications system.

Learn more
Learn more about how to efficiently keep all your entities in good standing. Contact a CT Corporation to request a good standing audit. We’ll show you where you’re registered and your status with the Secretary of State. If our research uncovers any issues, we can help you resolve them.

Related resources:

What is good standing and why your business needs it

Registered agents and annual reports: Essential elements of good standing

4 reasons to stay in good standing for business compliance

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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