Meeting the Business Compliance Requirements: Internal and External 

Have you thought about if your business is meeting the compliance requirements?


The end of the year is coming up sooner than you think, have you thought about if your business is meeting the compliance requirements? Do you know what corporate formalities you must maintain for your business? Well, you have come to the right site.

Business compliance falls into two different categories: Internal and External. But what is the difference and how can it bring consequences to your business if you are not meeting both these requirements? Internally, a company must maintain the corporate formalities depending on whether you are established as an LLC or a corporation.  This is extremely important as it pertains to litigation exposure and defeating any Alter-Ego claims…more on that in the future! External requirements relate to the requirements of your State of incorporation but will also include filings with the IRS.  These vary drastically State to State with different fees, forms, and dates to comply, and will vary depending on whether there is a foreign ownership component to your business.

Internal Requirements are the following:

Corporations (both C and S corporations): Have a stricter requirement, including holding initial and annual meetings, issuing stock to shareholders as well as registering as exempt securities (if applicable) and ensuring resolutions accurately reflect te decisions taken by the organization.

LLCs: In this case, it is recommended to maintain an updated operating agreement, issue membership shares, recording all membership interests and again ensuring resolutions have been passed, when taking actions requiring voting.

Compliance Kit: A good attorney will provide you a compliance toolkit to organize records and send you reminders for when your compliance due dates are coming up.

Document template: These are templates that are for bylaws, that can help save up some time for the process and are usually provided by your incorporation service provider if you incorporate online.

External Requirements are the following:

Annual Reports: In almost every State a Corporation is required to file an annual report or annual statement, that helps the State keep informed about the Corporation.

Franchise Tax: Besides doing the annual report or statement, an LLC will be required to pay the Franchise Tax. The Franchise Tax is essentially paid for the privilege of doing business in that State.  The fee and due date vary by State but in California, that amount is as high as $800 per year.

Due Dates for annual report or statement and Franchise Tax varies by state:

In the state of California, it is required to file both of these documents during the first six-month period ending on the last day of the anniversary month of the incorporation. The fee for the statement is $25. An annual franchise is due on the 15th of the day the third month after the close of the year, but in the first year a corporation is exempt.

Federal tax identification number (EIN): This can be very important if your business plans to have employees or for that matter will be needed for most other activities your business intends to undertake including opening a business account.

Corporate compliance is an absolute must, even if you are a sole shareholder or owner of 100% of the membership units in your LLC.  Maintaining corporate formalities ensures you can rely on the protection from liability that a separate legal entity provides.  Without it, you will open yourself up to personal liability in the form of an alter-ego claim.

DOWNLOAD Meeting the Business Compliance Requirements: Internal and External

The attorneys at Khinda Wilson, LLP will meet with you and help you determine how best to set up your company based on your business goals.


*The information presented in this article does not constitute legal advice and is not intended to create an attorney-client relationship. The information presented in this article is not tax advice.

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