Many new business owners are unaware of the requirements they must fulfill in order to keep their corporation or limited liability company (LLC) compliant with the state of formation. Incorporating a business or forming an LLC offers business owners the protection of limited liability, meaning the owners are typically not held responsible for the debts of the company. However, just having a corporation or LLC does not mean that the owners’ personal assets are continually protected. Business owners must comply with specific requirements in order to remain protected under that corporate or LLC status. Otherwise, their limited liability may be lost, which is known as “piercing the corporate veil.” Small business owners should understand the direness of this situation and work to maintain the limited liability the corporation or LLC affords them.
All states impose certain requirements on corporations and LLCs formed there. One such requirement is the filing of an annual statement (a biennial statement in some states). These statements are the state’s way of keeping updated information on corporations and LLCs. Most states also impose a filing fee on these statements. Not filing annual statements and paying the necessary fees in a timely manner can result in the corporation or LLC being in “bad standing” with the state. Being in bad standing in a state can eventually lead to administrative dissolution of the corporation or LLC. Therefore keeping your corporation or LLC in good standing at the state level is important.
Additionally, corporations are subject to a number of other ongoing requirements and formalities. History has dictated that such requirements must be satisfied in order to protect the corporate status. These formalities include, but are not limited to:
It is important to remember that a corporation is a legal entity that exists separately from its owners. Owners therefore have a duty to maintain that separation. By failing to conduct these requirements, business owners risk losing the protection towards their personal assets. For example, if the basic corporate requirements aren’t followed, and your corporation is sued, the plaintiff may try to name you personally in the lawsuit by claiming you (as a shareholder) are liable because you have not created a distinct separation between the corporation and yourself.
While any one of the items listed above on their own may not be enough to pierce the corporate veil, multiple items could lead to such an outcome. Additionally, the items mentioned below have caused courts to rule that the corporate veil has been pierced.
While LLCs do not have the formal ongoing requirements that corporations have, it is recommended that LLCs undertake many of the same steps. Common recommendations for LLCs include:
BizFilings can assist you in keeping your corporation or LLC compliant with requirements in any state. BizComply is a web-based application that outlines critical compliance events, notifies you before these events need to happen, provides access to important forms, and houses your company’s important information in one convenient location. If you are an owner of multiple businesses, you can keep track of each business through a single account. Additionally, if your business is qualified in other states, BizComply will help you manage the compliance requirements for each of those states.
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