As you grow your business, you can expect to deal with both obvious and unexpected risks. Strategies to stay innovative, relevant, and competitive can also introduce new and sometimes unexpected challenges, such as compliance risks.
What is business compliance?
Compliance requires a company to meet or comply with specific laws and regulations at the federal, state, and local levels. This includes obtaining the necessary business licenses and permits, filing annual reports, maintaining a registered agent, and more.
Compliance requirements can change over time as your business grows and evolves. For example, adding employees, expanding into a new state, changing entity type, merging or spinning off, etc. can all create legal compliance challenges that need to be managed and maintained. More resources are added to already maxed out resources.
For more information, see the Entity Compliance and Governance Guide.
Compliance risks to your business
If your business entity is out of compliance with one or more compliance requirements, your business entity is considered to be “out of good standing.” If not quickly and appropriately remedied, this change in status can be very serious and damaging to both the company and you personally as the owner and representative of the company.
For example, if you operate a corporation, LLC, or other business entity and fail to file an annual report or pay franchise taxes, your entity may lose good standing. If violations continue for a certain period of time, the state can administratively dissolve the domestic entity or revoke its authority to operate as a foreign entity. In some states, other grounds for dissolution or cancellation also exist, such as failure to maintain a registered representative and office.
Your business is also at risk if you don't renew your business licenses or permits. Failure to comply with licensing laws may result in the loss of the right to conduct business that requires a license.
Other potential consequences of non-compliance and loss of good standing include:
- loss of name
- Loss of access to court
- penalties and fines
- personal responsibility
- tax lien
- Can't register business in other states
Your company may also suffer from reputational risks, such as a diminished brand reputation, difficulty raising capital, difficulty hiring talent, and increased costs of capital.
It's important to understand which aspects of growth trigger compliance requirements and what regulations apply to your business.
To help you stay compliant, this infographic details growth activities that drive compliance attention and change.