There is a reason all states and many local agencies regulate businesses, in part by requiring compliance with regular filing requirements.
When a state agency such as the Secretary of State has uniform and frequent filing requirements, consumers can feel some degree of certainty in their business dealings.
That is, when all paperwork, including Articles of Incorporation or other statements of information, asks for the same information and must be filed annually or biannually, business owners and consumers alike have some degree of trust and certainty in the business’ activity.
If a customer or consumer needs to make a complaint or bring suit, or a regulatory agency needs to review taxation information, the filing information makes this possible.
Compliance notifications, which give your clients ownership over deadlines and other time-sensitive requirements, can help avoid costly lawsuits by helping the client anticipate filing timelines and the information needed for each filing.
Without this information, your client risks loss of standing with the state and assumes additional risk/vulnerability should a lawsuit be filed against them.
Business compliance includes filing articles of incorporation (with mandatory language) with the state; holding an organizational meeting to elect officers and directors; and selecting incorporators.
Failing to execute any one of these steps could result in a defective corporation or business entity—and thus personal liability in the face of a lawsuit.
Lawsuits involving compliance issues can be time-consuming and financially burdensome.
If your client’s corporation or business entity is defective—meaning, it does not comply with state or local laws—they may not benefit from corporate protections.
That is, your clients could be sued personally and would incur personal liability if a court agreed with the plaintiffs and issued a judgment against your client.
In the case of a failed corporation or entity, your client could raise arguments as a defense to personal liability.
Some courts might review the facts and determine that if your client tried to hold itself out as a corporation and made a good-faith attempt to maintain compliance requirements, the client might be a de facto corporation.
Alternatively, your client could put forth a theory that a private party, such as a customer or supplier, treated the organization as a compliant, legitimate corporation and cannot now argue that the organization is not a corporation.
Most clients will not want to rely on these theories after-the-fact, however, and will instead appreciate the opportunity to review compliance notifications.
If you are concerned about maintaining your clients compliance, you can learn more about how Legalinc’s platform automates compliance notifications or sign up for a demo.