Forming an LLC or incorporating a business isn’t a “set it and forget it” deal. To stay in good standing with the federal, state, and local laws and tax authorities each year, you need to comply with certain rules and regulations.
Don’t get caught with your business compliance pants down! Failing to meet requirements could result in hefty fines. And it could put your business in jeopardy of losing the liability protection being an LLC or corporation provides.
To help you know what you need to stay on top of, I’ve compiled a list of common compliance responsibilities existing LLCs and corporations need to pay attention to:
- Renewing Business Licenses And Permits If your business has to have federal, state, or local business licenses or permits to legally operate where you’re located, remember to renew them before they expire. Letting licenses and permit renewals slip could land you in legal hot water and hurt your business’s reputation.
- Submitting Your Annual Report Nearly every state requires LLCs and corporations to file annual reports. Also called a “Statement of Information,” an annual report provides comprehensive details about a company’s activities in the prior year. You might need to submit an annual report to your state’s Secretary of State office every year, every other year, or on some other schedule. The frequency and information required depending on your business structure and the state in which you operate.
- Notifying Your State Of Changes To Your Business If your business has undergone any major changes (e.g., a board member left, your business moved, you authorized more shares to be sold, etc.), you must file an “Articles of Amendment” with your state. This will keep your paperwork up to date with your business’s current information. And that’s critical for maintaining the corporate veil that protects your personal assets in the event someone sues your company or your business has financial problems. If you’ve ceased doing business, you will need to file “Articles of Dissolution” and possibly other paperwork with your state to make sure it knows you are no longer operating your company. Without submitting the appropriate documentation, you could incur taxes, penalties, and other fees for as long as your business company continues to exist in the state records.
- Renewing Registered Agent Services By law in most states, LLCs and corporations must designate a registered agent to accept service of process on behalf of their businesses. This is especially so if you don’t have a physical location in the state in which your business is registered. Your registered agent must be recognized by and have a physical presence in the state in which your business entity is registered. “Accepting service of process” means your registered agent will receive legal and tax documents for your business. This ensures you will never miss the delivery of important paperwork. Make sure you pay the fee charged by your designated registered agent before your contract expires. If you don’t, the Secretary of State might consider your legal entity defunct, and you will lose your status as a corporation.
- Filing DBAs (a.k.a. “Fictitious Names”) If you decide to expand your business by adding products and services that are different from your original focus, your existing business name might not adequately represent those new offerings. For example, say you run a car detailing company called “Devlin’s Auto Detailing, LLC,” and you decide to build a car wash facility at a separate address. Using your LLC’s name won’t quite match up with the services you’re providing at the car wash, but you don’t want to form an entirely new legal entity. Instead, you file “Devlin’s Car Wash” as a DBA (Doing Business As). After your DBA registration has been approved, you can use that fictitious name to open bank accounts, write checks, and enter contracts for your car wash business. I caution you not to start using a fictitious business name without filing a DBA first because you could face fines, penalties, and possibly even lawsuits!
- Keeping Business And Personal Finances Separate Don’t blur legal or tax lines by commingling your personal and business finances! Besides making record keeping a nightmare, it’s a compliance no-no for LLCs and corporations. If you get caught, you risk losing the personal liability protection that comes from establishing your business as a legal entity separate from you as an individual. Don’t use your business checking account and credit cards to pay personal expenses and vice versa.
- Paying State Franchise Taxes Contrary to how it sounds, a franchise tax is NOT a tax specific to businesses that are franchises. Typically, certain states levy a franchise tax on LLCs, corporations, and partnerships for the privilege of doing business in that state. The criteria involved in determining how much tax your business must pay varies from state to state. If you are in a state that applies a franchise tax, avoid late fees and penalties by paying by the annual deadline.
You've worked too hard to start and grow your business to risk it all by slacking on your compliance responsibilities. Research what you need to take care of on an ongoing basis. And if you’re afraid you’ll forget, consider enlisting the help of a corporate compliance service that will remind you when renewal deadlines are approaching.