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LLC Compliance • The Paper Trail | ||
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After you've formed an LLC, or incorporated your business, there are important tasks you should do to properly setup and maintain your ongoing entity. Separation from Self. It is important that the company is kept separate from the owners and critical for the safe keeping of the LLC's asset protection benefits, and the corporate veil from being pierced in a corporation. This ongoing maintenance is referred to as "compliance" or "corporate compliance". Tasks Involved. These tasks include holding organizational meetings, special and annual board meetings, LLC member meetings, shareholder meetings, minutes & resolutions of important company or corporate decisions, and more. Why is LLC Compliiance Impotant? One of the main values of a Limited Liability Company is the protection of personal assets and keeping them out of the reach of would-be litigants suing the company and its assets. Losing that protection could cost you a bundle, not to mention the cost in loss tax benefits. Why is Corporate Compliance Important? Corporate compliance is necessary to maintain the "corporate shield". The corporate shield is one of your most valuable assets as it separates the company from the owners and provides the protection of your personal assets from lawsuits. Dropping the Ball. Too many business owners form a corporation or LLC to protect themselves then completely drop the ball. There's a whole laundry list of things you have to do every year to maintain your corporate protection. Keeping your LLC in Good Standing. Failure to understand and fulfill ongoing legal and tax requirements is one of the main reasons that Limited Liability Companies lose their good standing with the state. The Secretary of State may revoke an LLC if it does not meet annual maintenance requirements, and this status can make it easier for a creditor or adversary to pierce the corporate veil and hold the LLC's owners personally liable for its obligations. Compliance with federal, state and local requirements is a key part of asset protection, and business owners should discuss regulations specific to their business with their legal and tax advisors. How to Protect Your Assets Initial documents and formation. In the very beginning, you will want to obtain the correct and complete forms, papers, and documents for the forming of the type of entity you need. Depending on area of operation of the LLC, and its overall purpose of business, you may need more, or less, than you think. Where to get the help you need. Entity formers are not always interested in seeing that you have what you need as they are in selling you what they have to offer. You need to know what is needed and what part of that fits your specific type of entity being formed. As we often say, "All LLCs are not created equal--nor are all Corporations." Secretary of State. The requirements of the State for either an LLC or Corporation are single to the purpose of registering a company name and providing the rudiments of a business operation. To protect yourself and make use of all the benefits provided by either LLCs or Corporations, you will need far more than the State requires. Most inexpensive formation offers on the internet merely duplicate what you can do for yourself by filing the simple State one or two page documents. Initial registration and licensing. You don't need anyone to register a company with the State. It is a simple process of filing Articles of Organization for an LLC, or Articles of Incorporation for a corporation, with the Secretary of State in the state of formation. Typically, multiple-member LLCs or single-member LLCs will usually want to obtain a federal tax ID number from the IRS, which is a simple and quick process. Other state or local filings, such as business licensing or state or municipal tax registrations, may also be required. Annual federal, state and local filings. Most states have an annual franchise tax and/or annual report filing fee. LLCs may also be liable for payroll tax, property taxes, sales and use taxes (sometimes called "seller's permits") or business license renewals. The Department of Revenue or equivalent office in your state is typically a good starting point for research on annual state requirements. LLC owners also file federal and state income tax returns and may be responsible for annual requirements at the county or city level. Start off with the correct records. Many entities formed quickly, poorly conceived, or by formation providers (as on the internet), seldom provide you with the type of records you need to maintain your company's compliance records. See our list of forms, papers and documents needed, which are completely filled in for you and require, for the most part, merely your signature and then placement in your Company Minutes & Record Book. Creating and maintaining internal records. An LLC is governed by its Operating Agreement, an internal document that designates how and by whom the company will be run. To maintain its records, an LLC may hold organizational or annual meetings of members and document important information like financial activities and contracts, thus creating an all-important paper trail for the company. Reasons why LLCs and Corporations Lose in Court. The main reason why both LLCs and corporations lose law suits is because the judge was not convinced the entity was separate from the owner--thus leading to the concept of the business merely being an "alter ego," and losing its separate entity status, including asset protection and tax benefits. Creating and maintaining Corporate records. A corporation is governed by its Corporate Bylaws, an internal document somewhat like an LLC's Operating Agreement, that designates Shareholder, Director, Officer and Manager duties and responsibilities, and how the corporation is to be run. To maintain its records, the corporation must hold Shareholder, Director, Officer and manager meetings at least annually, or as the Bylaws specify, and minutes must be kept for each meeting. Without this paper trail, and numerous other documents, the corporation may lose its protection veil and corporate status. | ||||||||||
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DISCLAIMER: The information provided on this site is for informational purposes only and is NOT to be relied upon as legal advice. This service is not a substitute for the advice of an attorney and we encourage users to have all documents created on our site reviewed by an attorney. No attorney-client relationship is established by use of our online forms or within our purchasable CDs, and the user is not to rely upon any information found anywhere on our site. THESE FORMS, CDs, AND ENTITIES ARE SOLD ON AN "AS IS" BASIS WITH NO WARRANTIES OR GUARANTIES. If you wish personal assistance in deciding whether the document or entity found on our site is right for you or desire representations and warranties upon the legality of the document you are purchasing in the jurisdiction you will be using it, contact an attorney licensed to practice law in your state | ||||||||||
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