How Healthy is Your Business? Is it Time For a New Year Checkup?
With the new year we always take a step back to review where we have been and to plan for the future. in this timeframe there is a lot of emphasis about our health and well being and one would assume that it would focus on human beings but I am not in that business. My job is to worry about your business from a legal viewpoint and you need to know that there are a lot of “sick” businesses out there that, in the eyes of the law, just do not take care of themselves.
In the eyes of the law, both corporations and limited liability companies are “non-natural persons” and thus are required to take certain actions each year to maintain their good standing in the eyes of the law. Not keeping up with these requirements subject you to the risk that the liability protections that the entity is supposed to provide for you may be breached by a potential creditor or someone who has been injured by some action of the company. If someone breaks the “corporate veil” of your company then your personal assets are on the line and all of the effort and expense of creating and using the corporation and/or limited liability company will be wasted.
Corporations: Each year the corporation is supposed to hold an Annual Shareholder’s Meeting and an Annual Board of Directors Meeting even if things have been quiet for the company as a whole. This is supposed to happen even if you are the only shareholder and the only Director! It seems weird to be required to “talk to yourself” at these meetings but the documentation (called the “Minutes”) is the “blood” of the corporation and is necessary to demonstrate that the corporation exists and is active. At the Shareholder’s Meeting the shareholders elect the Board of Directors and take any other action necessary to validate decisions made by the corporation in the past year. At the Board of Directors Meeting the directors elect the officers of the corporation and make the major future decisions for the corporation. It may seem foolish but those meeting minutes are important!!
Both Corporations and Limited Liability Companies:
Both types of entities need to file an Annual Report with the Secretary of State. The Secretary of State mails this report to the company each year at the anniversary of the company’s formation. The report updates certain information about the company such as the address, the principals of the company and requires a fee to be paid. Failure to file these annual reports means that your company is not in “Good Standing” with the Secretary of State.
Do you know who your Statutory Agent is? The Statutory Agent is the person who will be served any legal papers if the company is sued. Many times the Statutory Agent is no longer involved with the company and should be changed. Take the time to check this out so that if a problem arises you will receive prompt notice of any lawsuits.
The Business Entity tax applies to both corporations and limited liability companies. You need to make sure that this tax is paid each year before April 15th in order to avoid penalties and late charges. This tax did not apply to limited liability companies until 2003 so some of the older companies have ignored filing and payment which will only cause trouble later.
Do your contracts with your customers provide for attorney fees, costs of collection and/or interest if you need to take legal action to collect your money? You will not be entitled to collect attorney fees, the costs of collection or interest on past due accounts unless the customer has signed an agreement taking responsibility to make those payments. Your paperwork needs to state these items and be signed by the customer in advance. A simple unsigned invoice does not give you these rights! Get you paperwork checked!
These are only a few of the signs of a “sick” company. Take the time to see an attorney for a business “check up”. Your corporate filings, current contracts and collection issues should all be reviewed to keep your company healthy and happy in the years to come!
THE ABOVE ARTICLE IS FOR GENERAL INFORMATION ONLY. IT SHOULD NOT BE RELIED UPON AS LEGAL ADVICE, AND CANNOT REPLACE CONSULTATION WITH A PRACTICING ATTORNEY !