As we move into the winter months it’s time to begin thinking of year-end business compliance responsibilities and business activities. Business compliance matters to businesses regardless of industry or size and it is something that needs attention every year.
Compliance regulations vary by state, so it is important for you to know the rules and due dates for each state you operate within. For companies do that operate across many states, or are expanding into new states, there are many variables to consider when selecting in which state to incorporate. Things to consider include annual fees and filings, franchise taxes, and state corporate tax.
Before we jump into our year-end checklist, I’d like to remind readers that there are significant consequences for non-compliance. What happens if your Corporation or LLC falls out of good standing or compliance? A lot can happen! When you company falls out of compliance you open yourself up to piercing the corporate veil, late fees and interest on payments that are owed, delays in business expansion into other states, or even the closing of your LLC or Corporation.
We’d like to help you prepare for the year-end and we want to help you get all your legal ducks in a row. To assist in these efforts, we’ve put together a year-end compliance checklist to set you on the right path. And to make the entire year-end compliance process as easy as possible, we’ve also created an annual compliance checklist you can download in a PDF (see below).
File Your Annual Corporate Documentation
Most states require registered C Corporations and Limited Liability Companies (LLCs) to file a Statement of Information, also called an Annual Report, with the Secretary of State’s office in your state to keep the business in good standing. You’ll need to update the names and addresses of LLC members and managers, a corporation’s directors and officers, registered agent information, and the number of shares issued. For significant changes, the state may require your business to file an Articles of Amendment.
Here are some examples of significant changes an Articles of Amendment would include:
- Changes to the company name
- Changes to the business address
- Changes to the members of the Board of Directors
- Changes in a company’s business activities (i.e., the purpose of the business)
- Changes in ownership
- Changes to the board of directors
- Change in management format (e.g., member-managed to manager-managed or vice versa) of an LLC
- Change in the type of stock offered by a corporation
- Changes in the number of shares authorized by a corporation
Corporations are also required to hold an annual board meeting with corporate minutes taken. Corporate annual meeting minutes serve as a record of a business’s annual meeting. With the exception of Delaware, Kansas, Nevada, North Dakota, and Oklahoma, state governments require corporations to keep meeting minutes.
Examples of the information that might appear in a corporation’s annual meeting minutes include:
- Date, time, and location of the meeting
- Who attended and who was absent from the meeting
- Meeting agenda items with a brief description of each
- Details about what was discussed during the meeting
- Results of any voting actions taken
- The time when the meeting adjourned
After annual meeting minutes have been approved (as determined by the company’s bylaws), a business should keep the original executed copy in a safe place. A business should keep its minutes for at least seven years, and make them available to members of the corporation (e.g., shareholders, directors, and officers) who make a “reasonable request” to review them.
Change a Business Structure
The past year created some challenges for business owners, and changing your business structure may be a good idea. Issues such as access to relief funding, tax breaks, and liability protections might be reason enough for Sole Proprietorships to incorporate or elect S Corporation status.
A structure conversion is not to be taken lightly, so be sure and discuss the options with your business attorney and accountant. Not all states allow conversions, so you’d need to dissolve your current entity and form an entirely new company under a different structure in those states.
If you decide this is the way you want to go, CorpNet can easily file your conversion documents on your behalf for a minimal service fee.
Renew Sales Tax Licenses and Reseller Permits
If your business sells products and services subject to sales taxes, you will need to register for a sales tax license from the state tax authority office. If you operate as a wholesaler, you don’t need to collect sales taxes, but you must get a reseller license (resale certificate). How often seller licenses and permits need to be renewed varies by state.
For example, in California and Texas, your permits are good for as long as you own your business (if you sell your business, the new owner will need to apply for new permits). Other states, such as Connecticut and Pennsylvania, require permit renewals every few years. Also, if you’re conducting business in more than one state, you must obtain a license in each state in which you do business.
Renew Business Licenses and Permits
Depending on your business’s industry, you may be obligated to obtain specific business licenses and permits from the state or local governments to legally run your business. Make sure you know when the licenses and permits are due for renewal and if there are any fees involved.
Check with your city, county, and state business development offices to determine which licenses and permits are required. Your business license, which must be renewed annually (for a fee), comes from your city. The fees vary depending on the type of business, the number of employees, and your location. Other local license and permit renewals include:
- Security alarm permit
- Parking lot permit
- Zoning permit
- Health department license
- Daycare license
- Entertainment license
- Accounting license
- Barber Shop license
- Environmental permits
- Sidewalk café permit
You may also be required to renew specialty licenses and permits. In general, these types of licenses and permits are needed for professional businesses such as contractors, plumbers, accountants, hair and nail salons, attorneys, and daycare operators. Typically, you will likely be required to have an inspection or take a test before your licenses and permits are renewed for these types of businesses.
Businesses selling services or products regulated by a federal agency require federal licenses, permits, and certifications. The following are the industries this pertains to:
- Alcoholic beverages (Also regulated by your states Alcohol Beverage Control (ABC) department
- Firearms, ammunition, and explosives
- Fish and wildlife
- Commercial fisheries
- Maritime transportation
- Mining and drilling
- Nuclear energy
- Radio and television broadcasting
- Transportation and logistics
Other Federal Filing Requirements
Most businesses do not have federal requirements outside of paying federal taxes and complying with the Affordable Care Act, which requires companies with 50 or more employees to inform the Internal Revenue Service (IRS) they provide health coverage.
Federal laws that require compliance, but no filing of documents include:
- Marketing and advertising laws
- Copyright laws
- Workplace poster laws
- Workplace health and safety laws
- Americans with Disabilities Act (ADA) regulations
Patents, copyrights, and trademarks are known as intellectual property and, with the proper registration, have significant protections under federal law. Your business may or may not have to register a patent or copyright. However, it is highly recommended you register your business’s trademark. Here is a quick explanation of all three.
- Patents give inventors (or the company employing the inventor) the right to prevent others from making or using the invention for a specific period of time. After the time has elapsed, the patent cannot be renewed, and the invention becomes part of the public domain.
- Copyrights are a form of protection given to authors of original works, including literary, dramatic, musical, artistic, and other intellectual pieces. You don’t necessarily need to register a copyright to have copyright protection. Copyright protections last for the life of the authors and artists, plus an additional 70 years.
- Trademarks are words, phrases, symbols, or designs (or combinations of any of these) that identify the source of a product or service and distinguish it from competitors. It is highly recommended that business owners trademark their business name and logo.
After you file to register a trademark with the U.S. Patent and Trademark Office (USPTO), you are issued a registration number. You are then required to use the trademark consistently and in a high-quality manner. Between the fifth and sixth year after your trademark has been approved and registered, you are required to file a “Declaration of Use.” Between the ninth and 10th year, you again need to file a “Declaration of Use (or Excusable Nonuse)” and, also, an “Application for Renewal” to continue ownership of the trademark. You must refile for ownership every 10 years.
Close a Business
Closing a company you helped create is never an easy decision. However, if you decide it’s time to close up shop, make sure you’re in compliance, or you could still be responsible for the business’s actions and financial obligations.
Sole proprietorships are the easiest to close down as long as you pay off any debts and notify customers and vendors. Partnerships, corporations, and LLCs should have a structured dissolution process outlined in their operating agreements. Usually, it begins with a formal vote and requires signatures from all partners and board members. Corporations must have consent from two-thirds of the voting shares. The rules for LLCs vary by state.
Corporations and LLCs must also file Articles of Dissolution or a Certificate of Termination or Certificate of Dissolution with the state. If you have locations in other states and have filed for Foreign qualification, you do not need file documentation in the other states, but you need to cancel any out-of-state registrations. Don’t forget to cancel all registrations, permits, licenses, and business names acquired in all the states in which you conduct business.
Finally, you must settle all the company’s financial obligations (vendor invoices, employee payroll taxes, and sales taxes). Then inform the IRS about your business’s closure, pay your final taxes and check the box labeled “final return” on your tax returns. Corporations are required to file Form 966 for Corporate Dissolution or Liquidation.
Business compliance can slip through the cracks!
Year-end is a perfect time to review your operations and make sure your business is in full compliance. Use our year-end checklist to determine which business filings you need to perform to manage this year’s activities and changes.