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Keeping Your Corporation or LLC out of Trouble


Many small-business owners recognize the benefits of incorporating or forming a Limited Liability Company (LLC) for their business. Among the advantages, limiting personal liability is key.

Once your business is incorporated (either by forming an LLC or corporation), it exists as a separate business entity. This means that the corporation, and not the business owner, is responsible for all of its debts and liabilities. This is known as the “corporate shield” or “corporate veil,” as it separates your personal assets from those of the business.

While incorporating a business or forming an LLC is a critical step, your work isn’t done once you submit those initial forms. You must make sure that your corporation or LLC remains in good standing. For example, if your business happens to be sued and the plaintiff shows you haven’t maintained your LLC to the letter of the law, your corporate veil is pierced and you can be personally liable.

Maintaining a corporation or LLC is an ongoing process. Here are six ways to make sure your corporation or LLC stays in compliance for years to come.

1. Don’t commingle your personal and business finances. Small-business owners often invest so much of their personal time, work and money in their companies that their personal and business finances become indistinguishable. Some business owners continue to use their personal checking account for their consulting business. From a financial standpoint, they don’t see the need to create a separate business account, but they have never realized that by commingling their personal and business finances, they are putting their LLC at risk.

Whether you have an LLC or corporation, you should maintain separate checking and credit card accounts for business and personal use. But setting up accounts is just the first step; you also need to use them properly. When your shopping basket contains a mix of personal and business purchases, it’s tempting to just use your own check or credit card for everything. But stay disciplined. That little extra time to keep your expenses separate will make your life a whole lot easier at tax time, and will help ensure your personal assets are protected.

2. File your annual report. Most states require some form of an annual report filing. (For some it’s every year, others every two years.) Specific due dates also vary from state to state, so be sure to know your specific filing deadline and check with your local Secretary of State’s office. Missing this deadline can result in penalties and late fees. And in the worst-case scenario, your company can be subject to suspension or dissolution.

3. Keep up with your corporate minutes and resolutions. If your business is operating as an S Corporation or C Corporation, you’ll need to record “minutes of meetings” whenever a corporate meeting is held. You’ll need to note every action or decision for the company in these minutes. Meeting minutes typically include time and place of meeting, attendance, chair of the meeting, any actions (purchases, elections, etc.), signature of recorder and date. Keeping these minutes, because even if you’re a sole owner of your corporation, that documentation may help you protect your limited liability shield if needed.

4. Record any changes with “articles of amendment.” Any time you make a change to your corporation or LLC, you can count on filing an official notification (referred to as an “amendment”) with your state. Examples of changes that might require notification include changing your company address, changing your official company name (even if you’re just dropping the “.com” from the name), authorizing more shares and a change in board members.

5. Make sure you’re legal out of state. If your company is in a state other than the state in which you formed your Corporation or LLC, you will need to qualify as a “Foreign Corporation or LLC” within the state that you will be doing business. The actual name of the form varies by State, and it’s typically filed with the secretary of state’s office. Specific licenses and permits may also be required for certain types of businesses as well. Generally if you have any kind of physical presence in a state other than when you formed your business, you will have to register and may have to file out of state tax returns.

6. Keep up with your corporate taxes. Just like you need to keep up with your individual taxes, your business must keep up with its registration and corporate and franchise taxes. There’s simply no legal way around this.


As a small-business owner, your schedule is invariably busy. But be sure to set aside some time to address your administrative and legal obligations. Know your deadlines and get your paperwork in on time. It’s a relatively easy task and will help ensure your LLC or corporation remains in compliance and continues to shield your personal assets.

Adapred from May 17, 20120 American Express Open Form Writer Nellie Akalp

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