Compliance

Compliance

Part of being the CFO of your small business is to be able to make sense of the numbers.  Only once you can turn your data into usable information can you more effectively plan out your business.  Understanding your compliance is important because your business must be able to understand how to minimize risks in order for the business to effectively survive.

As a small business owner, staying compliant can sometime seem to be one of the most daunting tasks of all of the ownership hats that you wear.  This is why it is beneficial to look for third party service providers who can help you to outsource some of the compliance tasks.  In general, business compliance falls into either one of two categories: internal or external.

• Internal requirements – These are actions that must be performed by the leaders of the company within the organization. Many small business owners tend to overlook these tasks; however, these requirements must be performed and documented as part of the company records. In the event of litigation, it may be necessary to present these records.
  • Corporations – Both C corporations and S corporations have statutory requirements that are much stricter than those of an LLC. Some of these requirements are:
    • hold initial and annual director and shareholder meetings
    • adopt and maintain updated bylaws
    • issue stock to shareholders
    • record all stock transfers.
  • LLCs – The requirements for an LLC are more lenient than those for corporations; however, they are still important. It is a good idea to:
    • maintain an updated operating agreement
    • issue membership shares
    • record all membership interest transfers
    • hold annual meetings of members and also of managers, if the LLC is manager-managed.
  • External requirements – These are actions imposed on a business by outside forces such as government regulators. Here are some requirements:
    • Annual reports. Many states require that annual reports be filed and that a fee be paid at the time of filing.
    • Franchise tax – A franchise tax is a fee paid to the state for the privilege of operating as a corporation or LLC in that state. There are several different ways that the franchise tax is calculated from state-to-state such as basing it on business revenue or the number of authorized shares and par value.
    • Initial reports – Some states have a requirement that new businesses file initial reports within the months following incorporation.

Human Resources is another area that many small business owners need help with.  One type of outsourced service provider that is gaining popularity is what is known as a professional employer organization (PEO).

• Co-employment – A PEO can hire a company’s employees which in turn makes the PEO the responsible party for employee tax purposes and insurance purposes in a practice known as co-employment. A PEO allows a company to outsource the following types of services:
  • employee management tasks, such as employee benefits, payroll and workers’ compensation
  • recruiting
  • risk and safety management
  • training and development