Effective legal entity management and compliance is critical for the success of your business. However, legal entity management compliance can be challenging for many companies – especially those juggling multiple entities. Because there are so many government-issued rules and regulations, organizations can benefit from implementing a solid entity management strategy – otherwise, it may be easy to overlook an upcoming filing deadline or forget to pay an important fee.
Simplified entity management practices can enable teams to increase their bandwidth and large teams to scale as they grow. Non-complex entity management can help teams reduce noncompliance risks and avoid costly penalties.
Read ahead for three steps you can take to make compliance easier in 2023 and beyond.
Perform an internal audit of your legal entities.
An internal entity audit is the first step your organization can take to simplify legal entity management and compliance. An internal audit gives you the opportunity to review your current entity management process, determine what’s working and what isn’t, and identify new opportunities to streamline the steps.
In the past, organizations may have been fine auditing their entities every six months or quarterly. However, the regulatory environment is changing. As new regulations (like the Corporate Transparency Act) take effect, the luxury of time may no longer be an option when it comes to gathering information and filing reports. Regularly performing an internal audit of your legal entities can help you determine where your legal entities stand. Then, you can develop a game plan around ensuring your legal documents and data are up-to-date.
Create and document your legal entity management strategy.
Organization is key to a successful entity management strategy. Without a documented strategy, an organization and its teams might not know the responsible filing parties, the requirements for each report, and other important details. So, it’s important to create and document a formal plan to mitigate noncompliance risks and prevent business challenges.
Your entity management strategy outline may include:
- Who is responsible for filing annual reports
- Where your filing documents are stored
- Which documents must be submitted for each report
- Due dates for each report
As you prepare each of your reports for submission, carefully document the steps as you go. Documenting each step will help you create a comprehensive record that outlines the phases, processes, and resources that were utilized when developing the framework. Documentation can guide future reporting initiatives, help easily review and refine current policies, and ensure success from the initial information gathering phase to the final filing submission.
Connect with a third-party provider for a free entity health check.
A certificate of good standing (COGS) issued by the Secretary of State certifies that your business is legally able to conduct business in its state of operation. Having a satisfactory status means that your business is up-to-date on filing its state reports, obtaining its state licenses and permits, paying its state taxes and fees, and complying with other statutory rules for operating the business entity. In short, a certificate of good standing serves as proof of your legal entity compliance.
When a business falls out of good standing, they typically encounter issues such as loss of name rights, fines and penalties, tax liens, and difficulties securing capital and financing. Businesses can falling out of good standing for several reasons including:
- Failure to pay a registration renewal fee
- Failure to file a required periodic document, such as an annual report or renewal form
- Failure to pay various types of state business taxes or fees
- Mistakes made in a filed form, such as not signing the form or not fully completing it
- Loss of a business or occupational license
- Criminal activity, including fraud, committed by the business or an owner
Fortunately, a satisfactory status can easily be recovered. In most cases, simply filing a missing document or paying an outstanding fee can solve the problem. However, the recovery process can be costly and time-consuming depending on why the good status was lost. For example, criminal activity or insolvency of the company would require additional penalties, creating new hurdles in regaining good standing.
A full-service corporate service provider and registered agent, like EntityKeeper, can assist with your annual reports filing from start to finish. As a highly-specialized compliance expert, a third-party provider is uniquely positioned to help establish personalized best practices that keep you fully compliant with legal standards and in full control of your business.
Additionally, a third-party provider, like EntityKeeper, can perform a free entity health check for your business. The entity health check includes an in-depth review of your entity’s standing today. If your provider finds that your entity is no longer in good standing, they can help you create a plan to get back in good status.
Get a Free Entity Health Check With EntityKeeper
Entity health should be monitored regularly to ensure good standing, prevent future non-compliance issues, and keep your organization operating at peak performance. Assessing your entity’s health and addressing challenges now can set you on the path for legal compliance and success.
If you haven’t taken the pulse on your entities in several months, don’t miss the chance to get your entities on track for the year ahead!