I'm always amazed at the sheer number of people who "look like" they have a banging business but if the cover was removed - don't really have a business at all because they failed to properly maintain it.
Most people think that simply filing a business registration is all that's required to create and stay in business. However, what many unsuspecting business owners and entrepreneurs don't realize is that "maintenance" of the business entity is paramount to benefits; yet, failure to properly maintain can open many doors of liability.
First, it's following the rules laid out for your state for the entity that you've registered. Since LLC is the most popular, I'll use that as an example. When you file an LLC registration, you are also subjecting yourself to the Limited Liability Company Act of your state. Not all state rules are created equal, so you must look up your state and determine what your requirements are to properly maintain the shield of protection.
Second, many rules require that you maintain a corporate record of meeting minutes with your board by sending out notices, and notating the attendance. Keeping a log of corporate/company resolutions for matters that are resolved, events that are produced by you, money that you loan or gift to the company are also important because this could aid you in saving on sales tax in the future if you ever sold the business. It's basically a tool to aid you in valuing your business.
Third, filing your annual reports and making proper fee assessment payments are necessary to avoid involuntary dissolution by the state.
Fourth, maintaining and keeping a record of all of your professional and business licenses to ensure that your business has continuity.
Five, opening a company/corporation banking account and keeping all business expenses and income separate from your personal.
These five things are just a start of what "maintenance" is. The most important thing to remember is, you don't want to simply appear like you have everything together. Do the work and actually put everything together.
Dangers of Failing to Maintain your Business:
First, if you fail to properly maintain your business like not completing your annual registrations, you will be involuntarily dissolved by the state. Thus, you will lose tax benefits that are afforded to registered businesses.
Second, you could lose a lot of money if you decided to sale your business and did not properly track your income and expenses through corporate resolutions.
Third, if you have poor bookkeeping, you could also subject yourself to higher business taxes. This is because, without maintaining your bookkeeping, you will undoubtedly miss opportunities that may be tax deductible.
Fourth, someone could sue you and ask the court to hold you personally responsible for any liability that you caused. If this happens and you've failed to maintain proper banking records, proper meeting minutes, to name a few, you may be forced to pay liabilities out of your own pockets.
The moral of the story.
Properly maintain your business. If you're not sure what you need to do, you may contact us for a business audit to illuminate areas that may lead to liability and what you need to strengthen your business shield.
This article is a service of SL DeBarros Law Firm, LLC. We offer a wide array of business legal services and can help you make the wisest business choices throughout life and in the event of your death. We also offer a Business Protection Start-Up Session or a Business Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule.