“Good standing” is your right to do business in the state where your company operates. Lose your good standing and you could lose your business name, your money, and access to the court system.
Compliance is necessary to ensure that you remain in good standing; however, compliance isn’t a simple process for corporations, franchises, and large businesses. It’s a complex process that requires around-the-clock proactive monitoring and collaboration between departments. In some cases, compliance can be overlooked, but the state doesn’t care what excuse you have for non-compliance and won’t think twice about revoking your good standing and penalizing you.
Common Reasons Businesses Lose their Good Standing
Large businesses have more difficulty remaining compliant because you’re subject to more compliance standards, and because you’re apt to do business in more than one state. Each state has compliance standards that must be met (they’re not the same across the board). Don’t worry, compliance, although difficult, is achievable with collaboration and thoughtful planning.
It helps to outsource services to industry-leading tax and compliance services, such as ADP SmartCompliance, which integrates with your existing payroll, HR, and financial systems. If you consider that lack of collaborative efforts is a leading reason businesses fail to remain compliant, you can begin to see the importance of software that connects departments. Even if you do have a designated compliance department, if the tools and software used are inadequate, state laws may still be violated.
Your accounting team is responsible for your company’s aggregate financial information, including statements, so make sure you’ve fully vetted your team. You don’t want to lose your good standing because your accounting department allowed your annual reports to lapse; unfortunately, this is an all too common reason businesses lose their good standing. It’s also important that financial records are updated after deals and expansions, and that all tax obligations are paid in regards to these financial matters.
Status changes, such as mergers, expansions, new locations, and acquisitions, often result in compliance and tax requirements. It’s essential that all departments are aware even if changes are frequent. Departments absolutely must work together to ensure compliance. It’s not obscure for entities to change their status many times in a given year or throughout the businesses’ life-cycle, but that’s no excuse for non-compliance.
Sometimes business owners think compliance ends when the business ends. This isn’t the case. You are liable even after you have locked the doors and shuttered the windows (even after a bankruptcy). Until you file dissolution and withdrawal paperwork in each state you operated in, you’re liable for taxes and compliance standards in those states. This is why your accounting department should be the last team members to be let go.
Penalties for Non-Compliance
Compliance is no picnic, but it’s not negotiable. The state doesn’t care if you’ve got a good reason for non-compliance; they’re going to penalize you anyway. Unfortunately, non-compliance penalties can be hefty and have the power to destroy a business. The following are some of the penalties you could face:
- Your risk of audit will increase.
- Hefty fines and fees.
- Tax liens on business and personal property.
- As a business owner, you can even be personally sued in a personal liability lawsuit.
As you can see, it’s essential that your business remains compliant. Be a leader, use the tools available to you, and stress the importance of compliance to your departments. Teach them to work together, and use the software available to bridge collaboration gaps. And, if possible, have an accounting team in every state you operate in, or at the very least make sure someone is trained to monitor and interpret compliance standards state-by-state.