Registering a business, particularly a corporation or LLC, comes with its benefits and downside. Some of the advantages of incorporating your company include giving your business a touch of professionalism and credibility as well as allowing you to safeguard your assets and save on taxes. On the flip side, running such a company comes with meeting ongoing conditions. As such, you have the responsibility to ensure that your corporation or LLC remains complaint with the stipulated statutory and federal business laws and governance. To avoid penalties and other punitive actions when you fail to comply, business owners can do the following to safeguard their business.
Create a Checklist
Leverage the small enterprise administration website in your state to gather all the appropriate requirements for ensuring that your business stays compliant. In case you fail to locate it, use the US Small Business Administration Website. Through the site, search for direct links to the business requirements stipulated by your state or where your business is located. Once that is done, make your checklist, not forgetting to outline the necessary framework and timelines.
Keep Virtual Copies of Paperwork and Receipts
Your company can have massive volumes of paperwork, especially when you adhere to the guidelines outlined by the IRS for business tax compliance and preparation. Nonetheless, federal laws do not necessarily require you to maintain the original copies. Transferring all your hard copies to virtual ones can help you save on space. You can also keep your receipts, as they may prove useful whenever you must show your company’s expenditure to the IRS.
Possible Conflicts of Interests ought to be Disclosed
Before filing your new enterprise as LLC, bear in mind that higher disclosure standards than sole proprietorships bind corporations. Partnership-based businesses also have high responsibilities. The statutory laws across all states require you to disclose all your company’s possible conflicts of interest to the other parties involved in running/operating your enterprise. Disclosure should be done in the form of writing in a bid to keep proper records.
Maintain a Transparent Paper Trail
In case creditors or even your state’s authorities want to investigate or audit your company, you must be in a position to prove to them the techniques you use to remain compliant. All the company’s activities and transactions ought to be clearly recorded. Your paper trail should also include minutes of formal corporate meetings. Although not all states require you to provide all these things, the Federal Rules of Evidence allows them to be provided as evidence.
Creating a Risk Assessment Framework for Compliance
Compliance risk is generally the risk of facing financial loss, regulatory sanctions, or a damaged reputation due to failure to comply with rules, laws, codes of conduct, among other standards. To mitigate this risk, coming up with a risk assessment framework is necessary. It allows you to effectively evaluate the reputation and legal risk exposure of your company’s business activities in terms of complying with the applicable internal standards of conduct and policies as well as relevant regulations and laws.
Consequences for Failing to Comply
Failing to comply with the set legal and governance requirements in your state can have detrimental outcomes for your business. Here is a look at some of the examples whereby failing to stay compliant in a given industry can lead to such negative measures being taken against your company.
SOX compliance is important because it protects the public and shareholders from fraudulent practices and accounting errors in businesses. Public companies that fail to comply with this regulation stand to face various penalties, including imprisonment, huge fines, stock exchange de-listing, or loss of insurance, depending on the violated section of the law. For instance, a CFO or CEO who knowingly submits false Section 404 audit reports stands to face a jail term of up to 10 years and a fine of $1 million.
HIPAA requires large healthcare systems and small healthcare practices, including dermatology and dental clinics, to maintain a compliant and secure health data environment. Violations of this law, such as the use of unsecured devices by the staff inside and outside the healthcare setting, can lead to a data breach. In turn, such violations attract hefty penalties and fines that are directed towards the staff involved as well as the institution.
Companies that are involved in storing, transmitting, or even processing credit card data must comply with various regulations such as PCI-DSS. Failure to do so or putting a customer’s bank card data at risk leads to hefty fines and even irreversible reputation damage to the company. Clients can find it difficult to trust you again after your security has been compromised.
In a nutshell, statutory and federal business laws govern all businesses. However, complying with these regulations is dependent on various aspects, including the location of your business, how it is structured, and the specific industry. As seen above, complying with the relevant laws and regulations can keep you and your business safe from reputation damage as well as legal and financial action.