Incorporating and Operating Formalities
When you incorporate, no matter what type of entity, there will be formalities that the business must conduct in order to preserve its legal status. Some of the operating formalities maintain the separation between the business and its owners from a legal perspective. These are important considerations and should be weighed when you are incorporating your business. These are all post incorporation actions and in most cases, continuous. You will have annual events that the owners and business must perform as part of being incorporated. These all relate back to the root of your initiative of incorporating a business, the better the company is operated, the stronger your liability protection is. These formalities are often more simple than they are important and Companies Incorporated offers complete compliance management to all incorporated businesses.
Standard Operating Formalities After Incorporating
Whether you form a C Corporation or a pass through tax entity, you will have to abide by several simple, yet critical, formalities. If these formalities are neglected, your incorporated business could be dissolved by the state for noncompliance.
- Registered Agent : By law every business that is incorporated or foreign qualified in any state, must have a address of server process, or registered agent, on file. This is a matter of public record. In many cases small business owners opt to have Companies Incorporated be their registered agent, thereby adding a layer of privacy to you, the business owner. This is the address of the registered entity who is on the public record that recieves mail correspondence on behalf of your business.
- Annual Report / Statement of Information : One year after you incorporate, the business must complete and submit a statement of information to your home state where you incorporated. This is a list of the officers and directors and address information. Along with this form, a small government fee applies.
- Business Accounting and Tax Compliance : Complying with the IRS is mandatory. Proper accounting and tax obligations must be performed. Depending on the type of entity you incorporate, various tax responsibilities are necessary. Only C Corporations pay income tax, all others file an informational return and the owners of the company pay the tax on business income.
Corporate Operating Formalities
There are additional formalities associated with being incorporated as a Corporation. Specifically the requirement to hold meetings of the shareholders and directors on AT LEAST an annual basis.
- Annual Meeting Minutes and Corporate Resolutions: If you incorporate a Corporation, you will have to hold meetings of the shareholders and directors. Corporate meetings are to be recorded and the important business actions and decisions discussed are to be approved by the board and the shareholders. These are resolved in the form of corporate resolutions and meeting minutes are produced. Signed by the meeting attendees and finally by the corporate secretary. This may sound like a complicated task, however, business owners have the support of Companies Incorporated to assist with these compliance measures.
How to Maintain Compliance After Incorporating
Companies Incorporated offers complete compliance services. We incorporate your business, offer business licenses, DBA filing, registered agent services, annual reporting and corporate kits and supplies. You can opt to have all of your compliance requirements handled for you by the leader in incorporation services.
Maintaining compliance once you incorporate is essentially preserving the very foundation of your incorporation. Filing with your state is the first step of incorporating, the act of officially organizing your business into a legal entity. Now that you have created a separate legal person, your entity must be operated as such. Along with the mandatory compliance events, there are some additional measures that should be examined as part of compliance.
- Commingling Funds: When you incorporate, your business should be separate from that of its owners. This includes financial ties. Business obligations and debt should be paid by the business out of a business account and recorded as a necessary business expense. Personal obligations and debt should be paid out of your personal accounts. This is quite important and very easy to overlook. If a business is paying its owner's personal bills and/or satisfying the owner's financial obligations of personal nature, then the business could be looked at as an alter ego of the owner(s). This would come into play if you were in the position where your corporate veil was challenged in court. If a court deems the business and the owner are "acting" as one in the same, the corporate identity could be overlooked thereby exposing the assets of the business owner to corporate creditors and your personal assets could be targeted to satisfy corporate responsibility. Your liability protection, in this case, is compromised. This would revert your liability protection back to that of a sole proprietor.
- Well Defined Agreements and Contracts: After you incorporate and are actively running a business, you will be in many situations where you will engage in an agreement or contract. It should be clear that your business agreements are between "the company" and the other party. This includes signing your name and corporate title next to it. For example, if you sign an agreement with only your name, this could leave the door open to personal liability. When you sign your name with "President, My Own Company, Inc", it is clear that the agreement is with the company and is agreed to by its president.
It is important to always keep in mind that you and your business are separate. This is part of proper maintenance and compliance with running an incorporated business. By properly adhering to the mandatory formalities after you incorporate and operating your business as a separate entity from those who own it, you are maximizing the protection offered from your incorporation.