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Closing the Compliance Gap to Ensure Ongoing Good Standing

By: Colleen A. DeVries, COGENCY GLOBAL on Thu, Dec 01, 2016

As a professional registered agent company, we are frequently asked to partner with clients who name us as agent in providing ongoing compliance services. This service involves preparing and filing an entity’s annual and periodic reports with Secretaries of State (or equivalent offices) throughout the United States. Clients who request this service understand the importance of maintaining “good standing”[1] and staying in compliance in each state where they do business. This is critical not only when entering into financial transactions, but also to ensure that day to day operations in all states are not disrupted.compliance gap and good standing.jpg

We often get questions on what state filings we can assist with and what we cannot assist with and why. In some cases there is confusion on what a registered agent company is responsible for handling versus what is the responsibility of in-house counsel or an outside tax or financial advisor. As always, the answer varies from state to state and is dependent on the type of the entity (i.e., corporation vs. limited liability company).

Some States Require Multiple Reports/Filings to Keep Compliant

Some states require an “information” annual or periodic report to be filed with Secretary of State and an additional franchise and/or income tax return to be filed with the Department of Taxation. In many cases, your registered agent will be able to assist with the annual/periodic reports while franchise and/or income tax returns will generally be handled by your internal accounting and tax team or your CPA.

Below is an example of multiple filings required in the state of New York in order to maintain existence within the state and not put the company in jeopardy of being revoked: 

  1. A Biennial Report is due every two years after the date of formation or qualification and is required to be filed with the Department of State. (This report includes general information such as current principal business address and name of one officer); and
  1. NY State Form CT-4, General Business Corporation Franchise Tax Return, is due annually with the Division of Taxation. This type of filing is handled by internal or external tax advisor[2].

The New York Department of State status will remain “active” until notification is received from the New York Division of Taxation that there is a delinquency in the payment of franchise/income tax returns for at least a period of three years. While the tax law says that a New York corporation may be revoked after three years for non-payment of franchise taxes, in some cases, the Division of Taxation takes longer to notify the Department of State.

The above example does not capture all of the possible scenarios of what is required to be filed with any Secretary of State or Division of Taxation or Department of Revenue. It is presented to illustrate the possible requirements with different departments within any state that should be considered and understood by all parties partnering to ensure compliance for any business entity. Based on the nature of your business, you may also have additional special agency or business license initial and annual filings.

Determine/Assign Responsibility for All Tasks Affecting Compliance

To close the compliance gap at your company:

  1. Identify what filings are being handled by your professional registered agent/ compliance provider.
  2. Identify what filings are being handled by your internal accounting/tax team or your professional CPA firm.
  3. If you are required to register with any government agency or to apply for and maintain business licenses renewals, identify who is handling these and include them in the conversation.

This may require setting up an in-person meeting or conference call among all parties (e.g., key stakeholders such as the Company Secretary responsible for managing subsidiaries, key contacts from your professional registered agent/compliance provider and internal tax team or CPA firm).

We have had success in closing the compliance gap that could result in any missed filings by increasing communication with clients and their advisors. Just a phone call or two can help clarify who is responsible for what filings, resulting in all parties having more clarity about the multiple triggers that can cause your company to lose its good standing. 

Close the compliance gap by encouraging conversation and increased communication among the partners you engage. This can enhance understanding or, at a minimum, clarify the gray areas where it is not clear which key stakeholder should be responsible for an important filing. Business is, after all, personal.

[1] In a previous post, What a Certificate of Good Standing Does and Does Not Tell You we discuss the challenges of understanding what is meant by the terms “good standing”, “existence” and “active” on state issued entity status certificates and the importance of understanding the difference in meeting your compliance obligations

[2] https://tax.ny.gov/pdf/current_forms/ct/ctf.pdf


This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice.

Topics: Company Formation and Filing Considerations