Many small business owners recognize the benefits of incorporating or forming a Limited Liability Company (LLC) for their business. Among the advantages, limiting personal liability is key. That is, if your company happens to be sued, the company (and not you personally) is responsible for its debts and liabilities.
While incorporating a business or forming an LLC is a critical step, your work isn’t done after submitting those initial forms. You’ve got to make sure that your corporation or LLC remains in good standing because if your business happens to be sued, the plaintiff may attempt to show that you have not complied with your state’s compliance laws on a yearly basis to keep your corporation/LLC in compliance. And if they are successful, your corporate shield is pierced and the plaintiff can seek recovery against your personal assets.
Maintaining a corporation or LLC is an ongoing process. Here’s what you need to know to make sure your corporation or LLC stays in compliance for years to come…
1. File your initial/annual reports (also known as a “Statement of Information”): Most states require some form of an annual report filing (some every year; some every two years). Specific due dates also vary from state to state — in some cases, it’s on the anniversary of your business’ incorporation date; in other cases, it’s when your annual tax statements are due; and in some cases, it’s at the end of the calendar year. Be sure to know your specific filing deadline (check with your state’s Secretary of State’s office ). Missing this deadline can result in penalties and late fees — in the worst-case scenario, your company can be subject to suspension or dissolution.
2. Keep up to date with your corporate minutes and resolutions: If your business is operating as an S Corporation or C Corporation, you’ll need to record Minutes of Meetings whenever a corporate meeting is held. You’ll need to note every action or decision for the company in these minutes. Minutes content typically includes: time and place of meeting, attendance and chair of the meeting, any actions (purchases, elections, etc), and signature of recorder and date. Keeping these minutes, even if you’re a sole owner of your corporation, can help you stand up in court and protect your limited liability shield if needed.
3. Record any changes for your corporation/LLC by Filing “Articles of Amendment”: Did you change your address? Drop the ‘.com’ from your official company name (or any other name change)? Authorize more shares? Did a board member or director leave the business? Any time you make a change to your corporation or LLC, you can basically count on having to file an official notification (referred to as an “Amendment”) with your state. In many states, these are called Articles of Amendment.
And speaking of changes, if you need to convert from a corporation to LLC or vice versa, you will need to form a conversion. Of course, the timing of such an act can have significant implications on your taxes, and you should consult with your CPA/accountant. In addition, not all states allow conversions; in those states where a conversion is not recognized, you need to dissolve the current entity and then form your company as a new entity.
4. Make sure you’re legal when conducting business out of state: If you’ll be conducting business in a state other than the state where you formed your corporation or LLC, you will need to obtain authority or permission to do so. In most cases, this entails qualifying as a Foreign Corporation or LLC within the state that you will be doing business within. The actual name of the form varies (for example, it’s called a “Statement and Designation by Foreign Corporation” in California) and it’s typically filed with the state’s Secretary of State’s Office. Specific licenses and permits may also be required for certain types of businesses as well.
5. Don’t commingle your personal and business finances: Small business owners often invest so much of their personal time, work, and money in their company that their personal and business finances become indistinguishable. However, you should maintain separate checking and credit card accounts for business and personal use. This simple step will also help you come tax time, as all your income and expenses related to the property will be in one place.
Of course, setting up accounts is just the first step; you need to use them properly. When your shopping basket contains a mix of personal and business purchases, it’s tempting to just use your own check or credit card for everything. However, stay disciplined. That little extra time will make your life a whole lot easier at tax time, and will help ensure your LLC or corporation stays compliant to protect your assets.
6. File DBAs for any name variations: For a corporation or an LLC, DBAs must be filed under the corporation or LLC whenever you conduct business using a name that’s different than your corporation or LLC name – i.e. if CorpNet, Inc. is doing business as CorpNet.com or CorpNet, then DBA’s need to be filed by CorpNet, Inc. doing business as “CorpNet.com or CorpNet”. Depending on where you live, DBAs are filed at the state and/or county level.
7. Don’t forget to close an inactive business by dissolving your corporation/LLC: Maybe you moved your focus from an LLC or corporation you formed years ago. You haven’t promoted your business, it has no revenue and no customers. You still need to file a formal termination (called “Articles of Dissolution” or “Certificate of Termination”) for that LLC or Corporation. Otherwise, you can still be charged fees associated with the business. You’ll still be expected to file an annual report (where applicable). You’ll still be required to submit tax returns to the IRS and state.
As a small business owner, your schedule is invariably busy. But be sure to set aside some time to address your administrative, and legal, obligations. Know your deadlines and get your paperwork in on time. It’s a relatively easy task and will help ensure your LLC or corporation remains in compliance and continues to shield your personal assets.