When forming a legal structure and comparing an LLC to a corporation, a common conversation is regarding requisite corporate compliance. That is the statutory obligations that we can’t contractually avoid. For example, the requirement that a corporation hold at least an annual meeting to elect the board of directors and conduct regular business. Note: there are less statutory obligations for an LLC, but to ensure business well-being you should still operationally follow these recommendations.
Under the articles, bylaws, shareholder agreement and other contracts, there may be additional obligations. It is important to understand these and comply with them. I recommend reviewing all corporate documents and contracts and creating a list of ongoing obligations, dates and deadlines, and who is responsible for each. Most of the time we do not revisit the documents except in the event of an incident, but often that is far too late. The goal is to contain the infection before it leads to an amputation. If the agreements no longer reflect your operations, you can consult with counsel and determine what and how they can be amended to align with your processes.
Annual reports must be filed on or ideally before the due date each year. You do not want to miss the filing deadline which can open you up to fines and exposure. Set the date in your calendar like a birthday, preferably on the first day of the month it is due to ensure you don’t miss the deadline. Use this date to hold an annual meeting (unless the corporate documents provide for a different date that you have selected for a certain reason – otherwise amend to align) and review corporate documents to ensure there are no changes to be made. These is a great time for a compliance audit as well.
Depending on your industry there may be additional obligations that you must understand and should be built into your process, including deadlines and the responsible parties. Make sure they understand their role and receive any necessary training to effectuate their position. Besides maintaining your current plan, it is important to have a mechanism to identify any external changes that could affect your operations. Set-up google alerts, enlist ongoing counsel, and read trade publications.
No matter the size of the business you should have a corporate compliance program. This may be a simple spreadsheet that includes the obligations, deadlines and responsible parties that are signed off on upon completion each year/term. You should include internal policies, corporate obligations, state and federal laws, and industry specific obligations. Think through each agency that can impose obligations on your entity. For example:
There is software available to help you manage compliance, and you can also enlist outside counsel services.
Once you have everything in place, maintenance can be streamlined. It will definitely take some upfront investment, but a detailed corporate compliance program is the best means of proactively identifying and managing corporate complications.