Post-Registration Companies Compliances in USA- An Overview
It must be remembered that corporations and other entities in the USA are incorporated as per the applicable state laws where the company is actually established. The laws in the USA permit businesses to select the state or the jurisdiction according to which they want to establish and govern their businesses. Thus, companies shall also be liable to the post-registration compliances of their respective states.
Enterslice advises and assists in preparing a compliance calendar that records all the statutory filings and disclosures to be made by your USA company to make sure that you always stay on the right side of the law. The annual returns are required to be filed along with the applicable fee to the respective state government departments.
Major Post-Registration Companies Compliances in USA
The statutes governing corporations and LLCs are those statutes that give the management of the Corporations and LLCs a choice to take actions, as opposed to regulatory acts which obligate these entities to take certain actions. Nevertheless, these statutes do provide certain compliance requirements which are as follows:
- Annual Filing Requirements
All the corporations and LLCs are required to file an information report with the respective business entity filing office of the state of their registration and of all the foreign offices where they are qualified to do their business.
These are referred to as annual report filing requirements because, in most cases, an annual report is supposed to be filed every year and the document that is filed is referred to as an Annual Report. However, there are certain jurisdictions where filing is not done on an annual basis, and thus the Form is called something else other than the Annual Report.
The information to be filed in the annual reports differs from jurisdiction to jurisdiction and from entity to entity. However, the following is the list of report contents that generally need to be furnished in the report:
- The legal name of the business entity
- The fictitious name of the business entity where the business entity is a foreign-based entity
- The Principal Office address in the state, if there is any
- The Principal office address wherever it is located
- The name of the registered agent
- The address of the registered office
- Names and business addresses of the officers (in case of a corporation) or managers (in case of an LLP) and the Directors.
An entity should also be aware of the filing requirements depending on the jurisdiction. Some states may obligate the entities to file their annual reports on a particular date or fixed date, while others may have a due date based on the business entity’s qualification or the anniversary of its registration. Most of the states in the USA want the annual reports to be filed electronically.
States have also laid down the provisions of penalties in case the business entities fail to submit their annual reports within the due time. Thus, if any entity fails to submit the annual reports within the due time, a late fee is charged. Generally, those businesses that fail to furnish their returns on a regular basis fall out of good standing. This may result in the state not issuing the certificate of good standing or filing the documents for the business entity.
If this practice of non-compliance with the filing of the annual reports persists, then such continued non-compliance can result in revocation or administrative dissolution. This means that an administratively dissolved LLC or a corporation is prevented from conducting any business other than the necessary tasks of liquidation and winding up of the business. This administrative dissolution or revocation further restricts the corporation and the LLC from the authority to transact business in a foreign state. Moreover, if a person engages in doing business while the business entity is administratively dissolved or liquidated, then it can attract penalties for such a person.
- The requirements of a Registered Agent
In order to receive documents on behalf of the company and pass them on to the appropriate persons in the business, both the Corporations and LLCs in the USA need to appoint a registered agent and have a registered office address.
This requirement has two parts, viz.
- The person that is supposed to be a registered agent of a corporation should be a resident of that state and should be authorised to receive documents on behalf of the corporation or LLC and;
- It is the responsibility of the LLC or the Corporation to notify the address of the filing office of the registered agent. Notification is also supposed to be made in case there is a change in the office address. Such office of the registered agent should be within the state itself, and a post office box address shall not suffice.
Again, penalties have been imposed by the statute should there be non-compliance. The most common penalty, according to most statutes, for non-compliance with the registered agent requirements is that of administrative dissolution and revocation. Many state statutes provide that the secretary of state can proceed towards revocation of a foreign corporation or administratively dissolve a domestic corporation that does not have a registered agent for 60 days or more or those corporations and LLCs that fail to notify the Secretary of State about the changes in registered agent or office within a period of 60 days from such change.
- Qualification requirements for Foreign LLCs and Foreign Corporations
The general requirements of every State’s LLC Act and Corporation Law provide certain qualifications which the LLCs and Corporations need to meet before doing business in their respective states. Some statutes do define the phrase “doing business in the state”. However, most of the statutes provide a list of activities that do not constitute doing business which includes maintaining or defending a proceeding, maintaining bank accounts, carrying on activities concerning the internal affairs of the entity, transacting business in interstate commerce and conducting isolated transactions.
While the abovementioned list of activities provides little guidance, the determination of whether an LLC or a corporation is doing business within the state is sufficient to require qualification depends not only on the concerned statute but on the case laws as well. To determine whether a foreign corporation or an LLC qualifies the criteria of doing business within the state, reliance is placed on the case laws.
The corporations and LLCs meet the qualifying criteria to do business within the state by filing a document, often called an application for Certificate of Authority, with the state filing office. The applicant is also required to submit a certificate of existence from the home state and submit it along with the application.
Unless a corporation or an LLC does not meet the qualifying criteria, they are not eligible to institute legal proceedings in any court of law of the respective foreign state. There are many states that impose penalties on those corporations and LLCs that commence business in the state without meeting the qualifying conditions. The penalties in these cases can significantly vary from state to state, and monetary penalties can range from anywhere between a few hundred dollars to several thousand dollars every year. Some statutes even go to the extent of penalizing the individuals who acted on behalf of unauthorised entities.
- Filings to be made after qualifying
It is incumbent upon every qualified Corporation and LLC to notify the state filing offices about certain changes that took place within their organisation. For instance, if a corporation or an LLC changes its name in its home jurisdiction, it has to notify the foreign state about such change. This is done by filing an application for an amended Certificate of Authority or filing a statement of change of name. The entity is also supposed to attach proof of a change in the application indicating that such a change did take place in the home state.
Corporations and LLCs continue to notify the foreign state frequently on any occasion or change in the organisation that requires the filing of documents if the foreign entity has ceased to exist as a result of a merger, converted to another legal form, or dissolved in the home state. Those entities that fail to notify the state filing authority may subject such entities to a statutory fine.
- Transactional Filing requirements:
Whenever any corporation or an LLC successfully completes any of the formalities such as formation, qualifications, mergers, change of name, dissolutions and other transactions where the entity has to comply with certain statutes, rules, and administrative policies, these entities need to prepare and file the respective documentation with the state filing office.
Non-compliance with any such issues may result in serious consequences for the entity, such as delay in the conclusion of the transaction, unanticipated tax reporting or tax requirements, and even monetary penalties can be imposed on the entity.
The only way to ensure compliance with transaction filing requirements is to be prepared by preparing the following questions and finding out their answers before the filing process:
- What is the name of the documents that are supposed to be filed?
- What is the proper filing office for a particular transaction?
- Who has the authority and duty to sign the document?
- What are the required contents of the document?
- What are the applicable fees for the submission of the documents?
- What are the supporting documents to be attached to the application?
- Whether the filing entity is in good standing or not?
- What is the appropriate method of making the application?
- What is the deadline for filing a particular document?
- What are the administrative policies of the filing office?
- Franchise tax requirement:
There are many states in the USA that levy on corporations and LLCs a special privilege tax upon their right to do business as a corporation or an LLC which is referred to as Franchise tax. The name of the franchise tax may be called by different names in different states. Some may call it license tax, some excise tax, while others may call it registration fee.
Franchise tax differs from that of corporate income tax, where an LLC or a corporation is bound to pay franchise tax even if that entity has not earned any income. It has to pay franchise tax after it has been incorporated and becomes qualified to do business as an LLC or a Corporation under the State’s law. Those entities that fail to pay the Franchise tax, generally meet the same consequences as an entity when it fails to submit the Annual Report. Additionally, other consequences, such as the imposition of late fees, a loss of good standing and eventually revocation or administrative dissolution, shall take place.
Post-Registration Companies Compliances in USA related to the Internal Governance of the Entity
Both corporations and LLCs are supposed to comply with the requirements regarding how an entity is governed from within. These requirements are imposed either by the respective governing statutes or the internal documents of the entity. Corporations are usually subject to greater statutory requirements compared to LLCs. LLCs are required to comply with the self-imposed compliance requirements. The following are the requirements that these entities need to meet for internal governance:
- Mandatory Inspection and Record-keeping:
All LLCs and domestic corporations are required to maintain certain books and records as per the mandate of their governing statutes. Taking into consideration the existence of differences among states, the statutorily mandated records to be maintained generally include the following:
- Incorporation documents of an organisation such as the articles of incorporation, by-laws and an LLCs articles of organisation and operating agreement;
- A list specifying the LLC members and Corporate shareholders; and
- Copies of the financial statements, recently filed tax returns or annual reports.
Most of the statutes allow the LLC members and the corporate shareholders the right to access and inspect the maintained documents. If an LLC or a corporation violates this provision, the respective member and shareholders have the right to go to court, and if the court permits, the LLC and the Corporation have to pay the member or the shareholder costs.
- Shareholders meeting requirements and Board of Meeting requirements:
The corporation statutes make it obligatory for the corporations to organise a meeting of the shareholders after filing the articles of incorporation in order to complete the organisation of the corporation. There is, however, no compulsory provision for organising a board meeting or managers’ meeting. For that, the members may require the meetings to be held according to their operating agreements.
Every state corporation act mandates the corporations to hold an annual shareholders’ meeting. For holding such a meeting, the corporation is supposed to notify the shareholders of the date, time and place of each annual meeting. A court may order the holding of a general meeting if a corporation fails to hold one and fails to comply with this statutory requirement.
LLCs, on the other hand, are not bound to hold annual meetings. However, an LLC, in its operating agreement, may require the holding of annual meetings and may impose record dates, quorum, notice and other requirements. The operating agreement can specify the penalties if an LLC fails to comply.
- Liability of Indemnification:
Corporations and LLCs generally pay for all the expenses and liabilities accrued as a result of their management being sued for actions taken in their official capacity. Every State corporation law makes it mandatory for every corporation to indemnify its directors or officers who are wholly successful in defending themselves.
The provision of statutory indemnification is present in many State LLC laws, which are quite similar to the ones in the Corporation Acts. Other states leave it up to the members of the LLC to decide what they wish to do with indemnification and specify it in their operating agreement.
- Rights of the Dissenter:
Every state’s corporation statute provides dissenter’s rights to the shareholders. These rights obligate the corporations to pay their shareholders a fair value of their shares in the event of mergers, amendments and other corporate actions to which the shareholders dissent, and this results in a fundamental change of their shares. Corporations are supposed to follow a statutory procedure while granting the dissenter’s rights.
Some LLC Acts do provide dissenter’s rights. However, in the absence of a statutory provision, LLCs are given the freedom to grant themselves these rights by mentioning them in their operating agreements along with the procedure to exercise those rights.
- Miscellaneous compliance requirements imposed by governing documents:
There are a number of requirements that may be imposed on corporations and LLCs by their internal documents. For example, a corporation's internal documents may say that upon a merger, the preferred stock will be redeemed for a specific price. An LLC may impose similar obligations in their operating agreements. Failure to comply with these requirements can result in a breach of contract.