What happens when a business falls out of compliance?
If your business entity fails to comply with one or more state 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 legal 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. If a corporation or LLC is delinquent, suspended, or administratively dissolved, that status is available to anyone in the public looking up the corporation or LLC in the Secretary of State’s records.
Understanding which aspects of growth trigger compliance requirements and what regulations apply to your business or business entity is critical.
Common business growth events that can trigger new compliance requirements include hiring employees, entering new states, changing entity types, completing mergers or spin-offs, and adding regulated business activities. Each event can affect registrations, licenses, tax obligations, annual reports, and registered agent requirements.
What are the 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 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.
How can businesses manage compliance more effectively?
Companies in growth mode should be focusing 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 corporate service 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 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.
