With many people struggling to do their last minute vacation shopping and make sure everyone is on their gift list, business owners need to keep another list in mind: their list of corporate compliance requirements. Companies have to meet their obligations in order to maintain a good reputation with the state. Failure to do so could result in fines, penalties, and even the suspension or dissolution of their businesses. None of these results would start the New Year off well!
Responsibilities vary based on the type of business, business structure, location, and other factors. In this post I will explain possible requirements that entrepreneurs may have to meet. This is just a selection of the business compliance elements. Business owners should consider speaking to a lawyer and accountant for professional advice on their obligations.
1. Report changes to the status
When a company is registered as a limited liability company (LLC) or a corporation, it must report certain changes to the state. Some of the possible changes that the state would like to know about are:
- The company has changed its name.
- The company has moved and has a new address.
- The company approved the sale of more shares or added a new class of shares.
- The LLC has had a change of ownership (members have left or there are new members).
- Who is on the company’s board of directors has changed.
- The company has changed its registered agent.
- The company has added, changed or deleted provisions of its organizational documents (e.g. articles of association or articles of association).
To report material changes such as those listed, business owners must file “Article of Change” with the state and pay the associated fee. Changes should be submitted as soon as possible so that the state has accurate information about the company. Filing current details with the state is important to keeping a company in good shape and maintaining the corporate veil that protects the company’s owners from personal liability for legal issues relating to the company.
2. Hold an annual meeting if necessary
Almost every state requires companies to hold annual meetings with their shareholders and to record minutes of those meetings. Some states require LLCs to hold annual general meetings – and even if they don’t, an LLC’s operating agreement may require an annual general meeting. Any company that is responsible for holding an annual meeting that hasn’t held a meeting in 2020 will want to act quickly to get it started before the end of the year.
3. Submit an annual report
In many states, LLCs and corporations are required to submit an annual report either every year or every two years. Some states follow a different schedule. For example, Pennsylvania requires 10 year reports (every 10 years). Entrepreneurs need to know their state’s rules and deadlines.
Due dates vary. Some states require annual reports to be submitted by the anniversary of the company’s incorporation or incorporation, when annual tax returns are due, or by the end of the calendar year. Regardless of when annual reports need to be submitted, it is important to submit them promptly to avoid late fees and penalties. When a company is behind schedule, late filing is better than no filing at all!
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4. Review the tax payments made so far this year
Businesses making quarterly estimated income and self-employment tax payments year-round (e.g. LLCs taxed as disregarded companies, sole proprietorships, and partnerships) can benefit from year-to-date review of their income, expenses, and tax payments. In this way, they can determine whether they are under or overpaid and discuss with their tax advisor whether it makes sense to make adjustments to their last tax payment of the year (due by January 15, 2021).
5. Change the business entity type
The business structure of a startup could initially serve him well. However, as a business grows and evolves, its owners may find that a different type of entity proves to be more beneficial. For example, a sole proprietorship who hires people and expands into new markets may find that the limited personal liability and tax flexibility of an LLC can be legally and financially better.
Now is a good time for business owners to consider making a change, as registering a new business structure with the effective date January 1st can provide a clean break between operating as a business structure this year and the new one in the new year . This can help keep things simple for tax filing purposes. If companies are changed in the middle of the tax year, a company must submit two sets of tax forms (one for the type of company they worked for before the change and one for the new type of company for the remainder of the year).
Because switching companies have legal and tax implications, business owners should make sure they understand the pros and cons. Advice from a trusted lawyer and tax advisor can help make an informed decision.
6. Close an inactive business
It is not enough to stop selling products or services to shut down a business. An LLC or corporation must file a document with the State Department called “Article of Dissolution” or “Notice of Dismissal.” Similarly, a partnership may need to file a termination form to notify the state that it no longer exists. Other possible tasks in completing a business could include canceling licenses and permits, and closing the company’s tax accounts. If a company does not officially notify state, state, and local authorities that it is no longer doing business, it may remain responsible for filing required reports and paying applicable taxes and other fees.
Cheers to compliance
This year has been a challenging year for many companies as many factors were beyond their control. Business compliance is one thing that business owners can control. So don’t miss the opportunity to get it right.
If you are unsure of your company’s responsibilities, check your state’s requirements and seek professional advice from an attorney. The New Year will be happier and brighter when all of your business compliance obligations are in place and in good shape.
CONNECTED: Prepare your company for a successful year with an annual target meeting
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