Staying compliant is one of the most overlooked yet essential aspects of running a business. Compliance mistakes small business owners make can lead to fines, administrative dissolution, and reputational damage. Unfortunately, many business owners make avoidable mistakes that put their companies at risk. Today we’ll outline the ten most common compliance mistakes small business owners make and explain how to steer clear of them.
Understanding Compliance Mistakes Small Business Owners Commonly Make
1. Failing to Designate or Maintain a Registered Agent
Why It Matters:
A registered agent is a legal requirement in all states. They ensure your business can receive legal documents, tax notices, and official state correspondence.
The Mistake:
Using a home address, rotating staff, or simply forgetting to maintain an agent can result in missed legal notices and penalties.
How to Avoid It:
Designate a reliable, professional registered agent service that ensures consistent availability and compliance across jurisdictions. Universal Registered Agents provides reliable and affordable registered agent services in all 50 states. Get started with our registered agent services here.
2. Missing Annual Report Filing Deadlines
Why It Matters:
Annual reports are required in most states to keep your business in good standing.
The Mistake:
Failing to file on time can lead to late fees, loss of good standing, and even administrative dissolution.
How to Avoid It:
Use a compliance calendar or automated reminder system. Better yet, enroll your entity in an ongoing compliance management system. URA offers annual report service. Our ACE Service guarantees on-time filing and eliminates the annual report filing workload. Enroll your entity with our annual report service today!
3. Not Keeping Personal and Business Finances Separate
Why It Matters:
Maintaining financial separation between your business and personal accounts protects your limited liability status.
The Mistake:
Using the same bank account for business and personal expenses undermines your entity’s legal protections.
How to Avoid It:
Open a dedicated business bank account. Use accounting software to track expenses and ensure clear records. To learn more about the importance of maintaining separate records for your LLC, visit our blog post – Bank Accounts for Your LLC: Why Separate Accounts Matter.
4. Neglecting to Update State Records After Changes
Why It Matters:
Changes like business address, ownership, or registered agent typically must be reflected in state records.
The Mistake:
Failing to update this information can lead to miscommunication or fines.
How to Avoid It:
Depending on the changes, you may need to file Articles of Amendment or equivalent forms. It’s important to do so promptly after any business changes.
5. Ignoring Ongoing State and Federal Requirements
Why It Matters:
Business entities must meet ongoing requirements, such as franchise taxes, annual meetings, and BOI reporting (foreign entities only, as of the date of publishing). You can learn more about BOI Reporting with FinCEN here.
The Mistake:
Thinking compliance is a one-time event after formation.
How to Avoid It:
Understand your state and federal obligations and revisit them regularly. Consider a managed compliance service like our ACE Service.
6. Not Holding Required Meetings or Maintaining Minutes
Why It Matters:
Corporations are typically required to hold annual shareholder and board meetings and maintain minutes.
The Mistake:
Failing to document these meetings can undermine your corporate veil.
How to Avoid It:
Schedule annual meetings and keep organized, dated records of minutes and resolutions.
7. Operating Without Necessary Business Licenses
Why It Matters:
Local, state, and federal licenses may be required depending on your business type and location.
The Mistake:
Assuming an LLC or corporation status alone allows you to operate legally.
How to Avoid It:
Check licensing requirements for your industry and jurisdiction.
8. Letting Your Entity Lapse in Other States
Why It Matters:
If you do business in multiple states, you must maintain foreign qualifications. That means that your entity must be registered and in good standing in all the states that your business operates in.
The Mistake:
Overlooking renewal filings or failing to maintain good standing in all jurisdictions.
How to Avoid It:
Track requirements for each state and centralize oversight with a multi-state compliance provider like URA.
9. Inadequate Recordkeeping
Why It Matters:
Good records are essential for audits, legal disputes, and compliance.
The Mistake:
Losing formation documents, contracts, or important correspondence.
How to Avoid It:
Create a digital filing system and back it up regularly. Store key documents in a secure, searchable location.
10. Failing to Understand the Difference Between Tax and Legal Compliance
Why It Matters:
Staying legally compliant isn’t the same as staying tax compliant.
The Mistake:
Assuming your CPA handles everything, including state filings and registered agent responsibilities.
How to Avoid It:
Work with professionals for both tax and legal compliance. Know who handles what to avoid important compliance requirements falling through the cracks.
Be Proactive, Not Reactive with Your Compliance
Compliance doesn’t have to be overwhelming, but it does require attention and planning. By avoiding these common compliance mistakes, small business owners can protect their company’s legal standing and ensure long-term success. If you need help managing compliance across all 50 states, URA offers comprehensive services designed to keep your business on track and in good standing.
