Businesses compliance operates at two levels.
- Level 1 – compliance with the external rules that are imposed upon an organisation as a whole
- Level 2 – compliance with internal systems of control that are imposed to achieve compliance with the externally imposed rules.
Compliance regulations can be divided into two categories: internal and external.
- Internal compliance measures are typically required by state governments for business entities. They are formed and enforced internally by a company’s managerial staff.
- External compliance refers to those requirements imposed and enforced by a state or federal authority.
Internal Compliance
Corporations have strict internal requirements, which consist of forming a board of directors, conducting initial and annual director meetings, creating and updating bylaws, providing stock to shareholders and transcribing all stock transfers.
Internal requirements are largely meant to ensure that a corporation is being run with integrity and free of corruption or other corrupting elements. Some parts of the business, such as stock sales, will be governed by external compliance requirements as well.
External Compliance
External requirements for corporations are sanctioned by the state in which you are incorporated and those in which you conduct business.