Why Compliance Really, Really Matters?

Now you are up and running... so where's your company records book?

When first starting out, it is normal to create an LLC or a Corporation just to get the tax savings and to name your new venture. It’s the transition to a real, operating entity that often gets missed… It’s been a few years, the business is stable, and you haven’t ever had an actual meeting of the board. Is this a problem? Well, it depends. Ask yourself the following questions, and if one applies to you, it might be time to get compliant.

1.      Do you own any substantial assets outside of your business?

2.      Is there more than one owner of your business?

3.      Are you the general partner or the president or the CEO or a director on the board? Do you know?

4.      Is there any debt being carried by the business?

5.      Do you ever plan to sell your business or transition it to the next generation?

6.      Is there any possibility of a regulatory agency auditing your business?

7.      Are you paying extra taxes for your business structure? Do you know?

Uh...?

Here’s a straightforward approach to solve this issue:

1. Create Corporate Records

Typical Records Book

Pull all essential documents into one secure and accessible location both electronic and in tangible paper form. Include the following:

• Formation and Governance Docs: Articles of incorporation, Certificate of Organization, bylaws, operating agreement, and all amendments.

• Ownership Charts: A current map of structure, subsidiaries, and parent companies, if applicable.

• Board/Shareholder Actions: Resolutions, consents, and minutes that support important business decisions.

• Annual/Biennial Reports: Copies for each State where operating.

• Licenses and Permits: Documentation of business licenses and their applicable dates.

• Registered Agent Info: For every entity in every State.

2. Keep Everything Updated

Stay Updated

Build these steps into your routine:

• Internal Document Audits: Check records every quarter for errors or missing documents.

• Set Automated Reminders: Use tools to alert you of compliance deadlines and necessary filings like Secretary of State annual reports.

• Have Update Protocols: Quickly update records after significant events, like new board appointments or governance amendments or key business activities like major purchases, formation of a new entity, etc.

• Have Regular Meetings with Minutes and Resolutions: Always provide minutes for each meeting as required to stay compliant. Use resolutions to document major business activities and decisions. An LLC should have at least one annual meeting per year. A Corporation often will require a larger number of regular meetings, at least monthly as a general rule.

Conclusion

When records are centralized, routinely audited and updated, you minimize risk and put your business in the best position to be successful. Properly maintained company records help to insulate you from “pierce the corporate veil” actions, mismanagement, embezzlement, failure to comply with regulatory requirements, administrative terminations, and tax issues. Additionally, having your records up to date helps to avoid the mad scramble that could ensue when the opportunity arises to obtain funding or to sell your business. It’s just prudent…and not coincidentally, a legal responsibility too.

Curry Andrews, Attorney