Corporations. Corporations (both C corporations and S corporations) have the strictest internal requirements, including holding initial and annual director and shareholder meetings, adopting and maintaining updated bylaws, issuing stock to shareholders, and recording all stock transfers.
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.
LLCs. While it’s not required for an LLC, it’s recommended that you maintain an updated operating agreement, issue membership shares, record all membership interest transfers and hold annual meetings of members and also of managers, if the LLC is manager-managed.
Compliance kit: Many small business owners use a compliance kit to organize records. These include items such as sample bylaws or operating agreement, stock or membership interest certificates and transfer ledger, a corporate or LLC seal, and sample meeting minutes.
Understanding external requirements
External requirements are imposed by the state in which your business is incorporated and any state where it is registered to transact business (has undergone foreign qualification). State compliance requirements often include an annual state filing (annual report) and payment of a corresponding state fee. Here are some things to keep in mind as you address your requirements:
Annual reports: Most states require corporations and LLCs to file an annual report (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 either case, states typically require that a fee be paid when statements are filed. These range from $10.00 to $300.00 or more.
Franchise tax: Some states also have a franchise tax—a fee paid to the state for the privilege of operating as a corporation or LLC in that state. States employ different formulas, which may be based on business revenue or number of authorized shares and par value, for calculating this tax. In California the minimum tax is $800 per year. In other states, such as Delaware, it is lower at $250 per year.
Initial reports: Finally, a few states such as California and Nevada also require initial reports/statements to be filed and fees to be paid within the months following incorporation. Your online incorporator or registered agent will let you know if your state has this requirement.
In states such as New York, these fees can increase depending on how many partners you haveOther states charge a lower flat fee, some as low as $20 a year. This fee is in addition to any franchise tax.
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.
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.
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.
Facing the consequences
If a corporation or LLC is sued and unable to show it met all corporate or LLC formalities and state requirements, a judge can rule that the company has been acting more like a sole proprietorship or general partnership. This can result in “piercing the corporate veil” meaning that limited liability protection disappears and leaves individual owner(s) assets vulnerable if a lawsuit judgment is made against the company.
There are also consequences on the state level that can happen prior to piercing the corporate veil. If a corporation or LLC does not comply with a state’s annual or ongoing requirements, that company is no longer in “good standing.” Each state has different parameters for good standing, and many impose late fees and interest payments on outstanding annual statement and/or franchise tax fees. Being out of good standing long enough may lead to administrative dissolution, in which all benefits of being a corporation or LLC are lost.
Getting compliance assistance
Many online incorporators and professional registered agent service providers offer online compliance management tools specifically geared towards small business owners. These tools help make compliance with all formalities as easy and convenient as possible. If you formed your business as a corporation or LLC, be sure to take the time needed to ensure it stays compliant and keeps its valued entity status.