In most cases, when a corporation or limited liability company is formed, the business owners enjoy liability protections. This means that business owners are not typically held responsible for the debts of the company. However, this isn’t always guaranteed. In some cases one may reach the assets of the business owners of the corporation or limited liability company; this is called “piercing the corporate veil”. It can occur when either the business owners are not in compliance with the state in which they are doing business or have not followed through with “corporate formalities”.
Requirements for corporate compliance are in a constant state of flux as a result of changing laws and the actions of a business. Here are some critical areas of compliance you need to consider:
- Recordkeeping. Maintain publicly-available records as required by the states in which you do business.
- Service of process. Have your plan in place for responding to lawsuits.
- Entity expansion or contraction. Be aware of state-related business activities – either business expansions or contractions (even those that are involuntary) – that can trigger compliance violations.
- Other entity changes. File required documents for changes in corporate names, shares issued and more.
- Annual report filings. Meet deadlines for filing your state-required reports and paying state fees. For more information about annual report filings, click here.
- Business licenses. Obtain and maintain your required state and local business licenses.
- Registered agent representation. Appoint and maintain your registered agent in every state – home and “foreign” – in which you do business. For more information on how to be up to date with service of process, click here.
- Tax reporting and payments. Make timely and accurate tax-related filings and payments of any franchise, corporate and state income, sales and use, or other taxes.
As a new business owner, you should be aware of the continuing statutory compliance and corporate formalities that are required and, where not required, suggested, in order to remain in good standing with your state of formation and to maintain your personal liability protection. Please note this list is not exhaustive, but merely an overview for your reference. If you have a corporate kit, you will find samples of many of the documents and notices outlined below, and within the kit, will find the appropriate places to insert your documents for appropriate record keeping.
NOTE: The purchase of a corporate kit may be the single best investment under $100 you can make. It includes many of the forms you need such as sample corporate resolutions, annual meeting forms, share or member certificates, share transfer ledger, company seal, etc. However, its single most important function may be to serve as the one place in which you keep all of your corporate records which may be irreplaceable or, at least, extremely expensive to replace.