Many business owners delay incorporating or forming a Limited Liability Company (LLC) because they are apprehensive about the documentation required to keep their company in compliance. Incorporating or forming an LLC helps protect personal assets and provides tax-deductible benefits for employees and owners. It’s unwise to forgo these benefits simply due to a healthy fear of paperwork.
While state-by-state requirements vary, here are three important tips to help you keep your company in compliance and protect your personal assets in the event of legal action against your company:
• Avoid co-mingling your personal funds and identity with that of your company
• Document your corporate/LLC activities
• Be on time when paying your state franchise taxes and submitting your company’s annual report
Keeping your personal identity separate from your company includes signing business documents not only with your name but also with your business title and the name of your company. Other tips: avoid using personal checks or funds for business expenses and visa versa; avoid using personal stationary for business communications and company letterhead for personal matters.
Equally important is documentation of company activities. This includes keeping company records such as articles of incorporation, annual meeting minutes, sales of company shares, bylaws and business contracts in an organized format like a corporate binder or kit. As changes occur in your company structure, it is important to also keep amendments in your company files.
Finally, to protect your corporate status, you must remember to pay your annual state franchise taxes and file your annual report with the state. Failure to do so will result in the state voiding your company and treating it as an inactive entity.
Fear not, resources are available to help your company stay in compliance.
For your convenience, here’s a quick Compliance Checklist to guide your life after incorporating:
• Designate and maintain a Registered Agent to receive and forward legal and tax documents on behalf of your company. The Registered Agent must be located at a legal address—not a P.O. Box.
• Get municipal, state and county business licenses, as needed.
• Apply for your Federal Tax ID and take care of any special IRS elections such as S Corporation status.
• Write your company bylaws and any operating agreements you may need.
• Open your company bank account.
• If a corporation, then hold your first corporate annual meeting with written meeting minutes.
• If you formed a corporation, file an annual report with your state.
• Select an accountant/tax preparer and an attorney for your company.