It is very important to maintain your business, and it is often something that is forgotten about while you focus on building your business and taking care of clients.
Often life changes impact your business that you may not expect. We will be exploring some recent issues we have come across that people should be aware of.
When you form a Limited Liability Company (LLC) or a Corporation (S Corp or C Corp), there are some formalities that need to be followed. While there are fewer with the LLC, there are still some essential things that must be maintained.
The first example is an easy one to forget about, you have to pay all annual fees and file all required annual forms. I have seen both new businesses (1 year) and more seasoned businesses (nearly 40 years) end up having their status suspended because they failed to maintain their business with their Secretary of State. When you initially formed your business entity, the Secretary of State probably gave you some paperwork that advised of what you had to do, if not (or if you do not remember), research it and make sure you do what you need to.
The second important thing to do is ensuring the Secretary of State is updated (with everything). Have you moved? Have you changed your registered agent? Have you changed your Directors/Officers (some states require notification, others do not). If your business is formed in one state, where you live & you opt to be the registered agent (to save money, or for another reason), and then you move out of state, you need to get a registered agent for your original state AND at a minimum, possibly file with the new states Secretary of State as a foreign entity. The reason I say ‘at a minimum’ is that sometimes what you did in one state, will not work in the other state (or may just cost you a lot more money).
The third thing I would recommend is to ensure your documentation is always up to date. Keep minutes of meetings, ensure that your governing documents are current with both how you want to manage your business and with any changes in the law. Also ensure that you have succession planning for the business. What happens if the owner (or one of the owners) becomes disabled or dies? Who takes over? Who gets what? Who makes the decisions? Does your estate get money or does the business just vanish? There are many things to think about with succession planning, including a properly executed and funded buy/sell agreement.
The last thing, which you have probably heard before (especially if you have the assistance of an attorney) is to ensure that there is no commingling between your business and personal accounts. Never pay for personal expenses out of your business account(s)! Let me repeat that, NEVER pay for personal expenses out of your business account(s). Do I need to repeat it a third time with larger letters? (Can you tell how important this is?)
The reason it is so important for a business to follow all of these (some say silly) rules, is because it protects your personal assets from business liabilities. If there is a lawsuit and the plaintiff can show that you are not really a “Corporation” (or LLC), that you are really just one entity, they can pierce the corporate veil and go after both your business and personal assets.
Essentially, if you create a situation where someone can pierce the corporate veil, you have wasted all of your time and money of forming the business entity because the protections would essentially be thrown out the window.