Some people love to follow the rules–others live to break them. Many founders and business owners fall at least partially into this second category. After all, innovation requires questioning the status quo.
But one area where it’s wisest not to break rules is the law. Employment and tax laws apply to even the earliest stage, most disruptive founders, and not complying comes with penalties and fines. That means when it comes to business compliance, you need to become a certified box-checker.
This might sound simple, but compliance is anything but. Requirements vary from state to state, and many are difficult to both track down and interpret. That’s why many founders and business owners ultimately choose to seek the help of a consultant or compliance platform.
What is business compliance?
Business compliance is the act of making sure that your company follows all local, state, and federal laws and regulations applicable to its operations. Compliance management frequently covers the following areas of business operation:
- Payroll
- Taxes
- Workplace health and safety
- Labor laws
- Benefits administration
- Insurance
- Record-keeping
- Reporting
- Licensing and permitting
Why business compliance matters
These might feel obvious, but business compliance matters for two main reasons:
- Failing to maintain business compliance can harm your business. Businesses that don’t meet or maintain compliance can face legal and financial repercussions, with the severity of the penalty depending on the infraction. If you don’t file your taxes on time, you might have to pay a fine. If you do business in another state where you aren’t registered, you may be forced to cease operations there. Compliance violations can also damage your reputation with employees, business partners, and the general public.
- Maintaining compliance can help you run a successful business. Business compliance tasks can feel like busy work—after all, who wants to deal with laws and regulation, and all of the paperwork that comes with them? The truth, however, is that many compliance management activities are also basic business best practices. To maintain successful compliance, you need to manage your employees in accordance with federal and state law, keep organized personnel and financial records, and know where your business is heading—all practices that support the overall health and growth of your organization.
Who has to worry about business compliance?
Although specific requirements can vary by entity type and industry, maintaining business compliance is critical for companies of every size and growth stage. Businesses that ignore compliance laws and regulations early on can face time-consuming and expensive cleanup as they scale.
Compliance requirements for all business types
These business compliance requirements apply to all industries and entity types. Note that exact requirements will likely vary from state to state, and your business must comply with laws and regulations in every state where it does business.
- Tax compliance. All businesses are required to pay payroll taxes (i.e., social security and medicare taxes). C corporations are required to pay federal corporate income tax. Some states also levy corporate taxes, and may require quarterly payments. Multi-state employers have the added challenge of determining state tax obligations (known as tax nexus) in all states where they do business. Some states and localities charge franchise tax (a fee for doing business in a particular jurisdiction) and require businesses selling taxable goods or services to collect and remit sales tax.
- Labor law compliance. Your business must comply with regulations around workplace health and safety, payroll practices, and benefits administration (including health, disability, worker’s compensation, and unemployment insurance). It must also avoid discriminatory hiring practices, harassment, and other Equal Opportunity Employment Act (EEOA) violations.
- Licensing and permitting compliance. Your business must maintain all required licenses and permits, which may include registering with and/or obtaining a business license from the Secretary of State in any state in which you are conducting business. Many states also require businesses to file annual reports.
Compliance requirements by entity type
Corporations and LLCs face additional compliance management requirements.
- Compliance for corporations. Many states require corporations to establish and maintain bylaws, hold and document annual director and shareholder meetings, record corporate decisions and resolutions, issue stock to shareholders, record stock transfers, and file annual reports.
- Compliance for limited liability companies (LLCs). Some states require LLCs to hold annual meetings, maintain operating agreements, issue membership shares to owners, and record membership interest transfers.
Regulated industry compliance requirements
Some industries (known as regulated industries) face additional government-mandated compliance requirements. Regulated industries include the following:
- Mining
- Manufacturing
- Energy
- Financial services
- Insurance
- Transportation
- Healthcare
- Agriculture
- Construction
- Alcohol and tobacco
- Cannabis
Business compliance requirements and regulating agencies vary by industry type. As an example, the US Department of Agriculture regulates agricultural businesses, The Federal Insurance Office regulates insurance businesses, and the Federal Communications Commission regulates telecommunications businesses.
Some industries are also subject to more than one regulatory body. A financial services institution (like a bank) may be subject to the Financial Industry Regulatory Authority, the Securities and Exchange Commission, the Federal Comptroller of the Currency, the Commodity Futures Trading Commission, the Federal Reserve Board, and additional state banking and securities regulators.
Initial vs. ongoing compliance requirements
There’s a bundle of compliance-related tasks you have to accomplish upon incorporation. After that, you’ll need to make a long-term effort to maintain compliance to retain good standing in your state. Here’s a breakdown of initial and ongoing compliance tasks.
Initial compliance requirements
Attend to the following compliance requirements immediately after incorporation:
- Obtain an EIN from the IRS
- File an initial report (if required by your state)
- Publish notice (if required by your state)
- Obtain all relevant business licenses
- Open a business bank account
- Set up payroll accounts (if needed)
- Foreign qualify in your headquartered state if it’s different than your state of incorporation (as is the case with many Delaware corporations)
If you’re incorporated as a C corporation, you’ll need to take a few additional steps:
- Establish bylaws
- Issue stock to shareholders and record transfers
- Hold a meeting of directors and record minutes
- Hold a meeting of shareholders and record minutes
Ongoing compliance requirements
After meeting initial requirements, you’ll need to stay on top of employment practices, tax, licensing and permitting, legal and regulatory, and reporting compliance requirements. These vary from state to state.
Changes in state law or your business operations can also change your compliance management obligations. Here are a few things to keep in mind.
- Hiring employees in a new state. Hiring out-of-state employees carries a complex set of compliance obligations—and any time you hire in a new state, you need to go through the process again. Depending on the state in question and your business activities there, you may need to foreign qualify with the Secretary of State’s office, which may require applying for a Certificate of Good Standing from your state of incorporation, and obtaining a registered agent. Once you’re foreign qualified, you’ll also need to comply with the new state’s specific laws and regulations.
- New legislation. Laws change all the time. As an example, the governor of Illinois signed the Paid Leave for All Workers Act in March of 2023. This legislation will go into effect in 2024 and require most employers in the state to guarantee 40 hours of paid leave for any reason.
- Changes in your business. As your business grows, your compliance requirements can change. As an example, federal laws and regulations require companies with more than 50 employees to provide healthcare coverage and unpaid family and medical leave. Some states also have nexus requirements tied to the amount of income earned in that state, so if your business grows economically in certain states, your state tax obligations could grow.
How to stay compliant
- Establish responsibilities and evaluate your current state
- Get organized
- Maintain a calendar
- Seek help
A solid plan can help you ensure successful compliance—and the earlier you start, the easier it will be to maintain compliance as your business grows. Plus, you avoid a potentially expensive and time-consuming situation to clean up later.
1. Establish responsibilities and evaluate your current state
Consider who on your team will be responsible for compliance management and take stock of all requirements that could potentially apply to your business, keeping in mind that laws and regulations vary by state. Make sure to also identify business goals that might trigger compliance changes, like expanding into a new state or hiring more employees.
2. Get organized
Keep compliance-related information including account numbers, logins, registration dates, and corporate documents including bylaws, company handbook, and code of conduct in a centralized database that is easily accessible to key team members.
3. Maintain a calendar
Create a compliance calendar that includes key registration, licensing, filing, and payroll dates, making sure to add two notifications for each deadline—one marking the actual due date, and one providing advanced notice to initiate the applicable processes.
4. Seek help
Unless you are an expert in regulatory, tax, and employment law in every state where you employ workers, it’s a good idea to seek help. However, professional services costs can add up—especially if you need to bring together all of the experts you need to do a good job.
Mosey’s compliance platform helps you stay organized across all types of business compliance—HR, payroll, insurance, registration, and tax requirements—for each location in one place. It also tracks requirements so you will never miss important deadlines, providing timely alerts and always-on monitoring for upcoming requirements and new legislation—and more.
Want to learn more about Mosey? Schedule a demo—our team is excited to meet you.
Read more from Mosey:
- HR Compliance: Common Issues & Tips for Scaling Businesses
- Hiring Remote Employees: Everything You Need to Know
- Complete Guide to PEOs: What They Can & Can’t Do
- Certificate of Good Standing: The Business Owner’s Guide to How and Why
- What Is Foreign Qualification? Considerations & How to Qualify
- What Is Tax Nexus? Nexus Types & Determining Tax Nexus
- LLC Annual Report: What It Is, What’s Included & How to File
- Why Incorporate in Delaware? Pros and Cons for Startups
- Employee vs. Contractor: Understanding the Difference
