Once you have decided to organize, there are a variety of basic rules and regulations you should become familiar with. Simply stated, in exchange for the personal liability shield granted to each owner of an organized entity, certain legal requirements and formalities must be followed under each state statute. You should at least be familiar with the basic legal and regulatory requirements common to most, if not every state. I have attempted to provide an overview of the most important (and overlooked) requirements that are common to most of my corporate clients.
The requirements discussed below are introduced for the single purpose of helping to preserve an owner’s shield from personal liability. There are numerous laws, rules and/or regulations that the business must follow to avoid corporate liabilities from its creditors. Of course, as a practicing business and corporate attorney, I know the importance of retaining an experienced business attorney to not only organize your business, but to also oversee your business’s legal and regulatory compliance matters. Please keep in mind, state business laws vary from one jurisdiction to another and do change frequently.
Annual Reports
Most States require that all corporations and LLC’s file what are known as Annual Reports. These reports must be filed each year with the secretary of state or some similar state agency, typically around the anniversary of the organization date. Many of my clients forget to file their annual reports each year. Failure to do so will result in the imposition of a penalty and failure to file beyond a specified period of time will result in involuntary dissolution of your business by the state. So, you want to be sure to file your report each year in a timely manner. The Secretary of State or similar state agency sends the reports to each corporation or LLC’s registered agent.
The annual report is typically very simple and usually only requires that the current business address and names and addresses of each Member for LLC’s be reported each year. Corporation annual reports typically require that the directors and/or officers be listed, the amount of any additional capital contributed to the corporation identified along with the amount of stock that has been issued to date.
TIP! Each state typically imposes a franchise tax on every active corporation or LLC based upon the amount of its paid in capital. This fee must be paid at the time you file the annual report and the more paid in capital your business reports, the higher the annual tax your entity will pay each year.
Annual Meetings
Most if not every state statute authorizing the creation of corporations require by law that an annual meeting of the shareholders be held. Usually, this is so that they may vote upon the upcoming directors for that year. Directors are elected annually by the shareholders. An annual meeting of the board of directors must be held typically as well, where officers are generally appointed, and any other actions required to be taken by law at such meeting.
Additionally, the manner of notice of such meetings given to each shareholder and director is specified under state statute and must be followed, or properly waived. Notices of meetings or signed waivers of notice should be drafted and kept in your corporate book for each annual or special meeting of the directors, officers or shareholders. Annual meetings of the Members are generally not required to be conducted for LLC’s. However, any solid business with multiple owners will want to meet frequently nevertheless.