As the year draws to a close, it’s an important time to review your company’s business compliance and legal standing and make sure you’ve kept up with all your legal requirements.
Forming a corporation or LLC is an excellent way to formalize your small business and protect your personal assets. But maintaining a corporation or LLC is more involved than a sole proprietorship. You have to know and follow the rules to keep your business compliant and in good standing.
The steps are simple, but they’re important: failing to keep your corporation or LLC compliant can result in added fees and penalties. In worst case scenarios, failing to stay compliant can cause your business to go into “bad standing” with the state. You can lose your personal liability protection, putting your personal assets at risk.
So, what do you need to do to check your business compliance to make sure your company stays compliant? Here’s a checklist:
1. File Your Annual Report
Most states require both corporations and LLCs to file an Annual Report (or Statement of Information). It’s a basic form that keeps the state office up to date with your vital information, such as company address and information about directors and officers. There’s usually a small filing fee associated with the report. If you’re not certain what your annual report requirements and deadlines are, check with your state’s Secretary of State office or an online legal filing service.
2. Pay Your State Franchise Taxes
Some states (such as California) have a franchise tax. This is basically a fee levied on corporations and LLCs for the privilege of operating in the state. Each state has different rules governing the deadline and how the tax is calculated. Check with your state’s Franchise Tax Board (or similar office) if you do not know your franchise tax obligations.
3. Report Any Major Changes to the State
You’re required to keep your state records current, so you’ll need to file an official notification (often called Articles of Amendment) if you make any key changes to your corporation or LLC. Examples of such changes include: changing your business address, changes to board members, changing your company name, etc. Like the Annual Report, this is a very simple form, so there’s no reason to risk your business’ compliancy by failing to file it.
4. Make Sure Your Registered Agent is Current
Your LLC or corporation has to provide an official address to receive important state documents and legal papers. Many companies opt to use a Registered Agent service as their official address, particularly those businesses that are home-based or don’t have a permanent office location. If you are using a Registered Agent service, you’ll need to make sure you keep up with your service fees. If not, the Registered Agent will stop representing you, any official mail from the state will be returned, and the state will put your company in bad standing until you provide an updated address of record.
5. Register Any DBAs, If Needed
If you ever conduct business under a name that’s different than your official name filed in your LLC or incorporation paperwork, you’ll need to file a DBA (Doing Business As) with the state. You need to file a DBA for each variation, no matter how minor the difference seems to you; for example, my company, CorpNet, Inc. filed a DBA for CorpNet.com. DBAs are filed with the state or county clerk office, depending on where you live. Or, you could have an online legal service handle the paperwork and filing for you.
6. Keep Your Business and Personal Finances Separate
If you began your business as a sole proprietorship, you may have used one checking account for your business and personal finances. However, once you incorporate or become an LLC, you are legally required to separate your business and personal finances. If you haven’t done so already, open a business checking account (you’ll need an EIN from the IRS first), apply for a business credit card if needed, and get disciplined about keeping everything separate.
7. See If You Need to Renew Any Permits or Licenses
Forming a corporation or LLC forms the legal foundation for your business, but you still need to get local business licenses or permits to legally operate your business. You can contact your local county office or city hall to find out what kinds of permits are necessary for your business – and if you need to renew any of these permits. Or, work with a legal filing service; they can track down the permits you need and make sure you’re up to date.
8. Close an Inactive LLC
One last note for end-of-the-year tasks is a reminder that you should close an LLC or corporation that is no longer active. Until you formally notify the state that you have closed the business, you will still be expected to file your business taxes, file an annual report, pay your franchise taxes, etc.
Take some time before the year ends to review your business compliance requirements and address anything you’ve overlooked. This will give you a fresh start for the new year.