As many people scramble to finish their last-minute holiday shopping and make sure everyone on their gift list is covered, business owners have another list to pay attention to: their list of business compliance requirements. Businesses must fulfill their obligations to stay in good standing with the state. Failure to do so may result in fines, penalties, and even suspension or dissolution of their companies. None of those outcomes would get the new year off to a good start!
Responsibilities vary depending on the type of business, business structure, location, and other factors. In this post, I’ll share possible requirements entrepreneurs may need to complete. This is just a sampling of business compliance items; business owners should consider talking with an attorney and tax advisor for professional guidance about their obligations.
1. Report changes to the state
If a business is registered as a limited liability company (LLC) or a corporation, it must report certain changes to the state. Some of the possible modifications the state will want to know about include:
- The business has changed its name.
- The company moved and has a new address.
- The corporation authorized more shares to be sold or added a new class of stock.
- The LLC has had a change in ownership (members have left, or there are new members).
- There has been a change to who is serving on the corporation’s board of directors.
- The business has changed its registered agent.
- The company has added, changed, or deleted provisions of its organizational documents (e.g., Articles of Organization or Articles of Incorporation).
To report significant changes like those listed, business owners must file “Articles of Amendment” with the state and pay the associated fee. Changes should be submitted as soon as possible so that the state has accurate information on record about the company. Having up-to-date details filed with the state is essential for keeping a company in good standing and maintaining the corporate veil that protects the business’s owners from having personal liability for the company’s legal issues.
2. Hold an annual meeting if required
Nearly every state requires corporations to hold annual meetings with their shareholders and record minutes from those meetings. Some states require LLCs to hold annual member meetings—and even if they don’t, an LLC’s operating agreement might require an annual member meeting. Any business responsible for holding an annual meeting and hasn’t held theirs yet in 2020 will want to act quickly to get it in before the end of the year.
3. Submit an annual report
Many states require LLCs and corporations to submit an annual report either every year or every other year. Some states follow a different schedule. For instance, Pennsylvania requires decennial reports (every 10 years). Business owners need to know what their state’s rules and deadlines are.
Due dates vary. Some states require that annual reports are submitted by the anniversary of the business’s formation or incorporation date, when annual tax statements are due, or at the end of the calendar year. Regardless of when annual reports need to be filed, it’s essential to submit them promptly to avoid late fees and penalties. If a business is running behind schedule, filing late is better than not filing at all!
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4. Review tax payments made so far this year
Businesses that make quarterly estimated income and self-employment tax payments throughout the year (e.g., LLCs taxed as disregarded entities, sole proprietorships, and general partnerships) can benefit from reviewing their year-to-date revenue, expenses, and tax payments. Doing so can help them determine if they’ve underpaid or overpaid, and discuss with their tax advisor or accountant if it makes sense to make any adjustments to their last tax payment of the year (due by January 15, 2021).
5. Change business entity type
A startup’s business structure might serve it well initially. However, as a company grows and evolves, its owners might find that a different entity type will prove more advantageous. For example, a sole proprietor who is hiring employees and expanding into new markets may find that the limited personal liability and tax flexibility of an LLC might be better legally and financially.
Now is a good time for business owners to consider making a change because registering a new business structure with an effective date of January 1 can provide a clean break between operating as one business structure this year and the new one in the new year. That can help keep things simple for tax filing purposes. If entities are changed mid tax year, a business must file two sets of tax forms (one for the entity type it was operating as before the change took place and one for the new entity type for the remaining part of the year).
Because there are legal and tax ramifications to switching entities, business owners should make sure they understand the pros and cons. Consulting with a trusted attorney and tax advisor can help ensure an informed decision.
6. Close an inactive business
It’s not enough to stop selling products or services to close a business. An LLC or corporation must file an “Articles of Dissolution” or “Certificate of Termination” document with the Secretary of State office. Likewise, a partnership may need to file a dissolution form to notify the state it no longer exists. Other possible tasks when finalizing a business might include canceling licenses and permits, and closing the business’s tax accounts. If a business fails to formally notify state, federal, and local agencies that it is no longer operating, it might remain responsible for filing required reports and paying applicable taxes and other fees.
Cheers to compliance
This year has been challenging for many businesses, with many factors beyond their control. Business compliance is one thing entrepreneurs CAN control, so don’t miss the opportunity to do it right.
If you’re unsure of your business’s responsibilities, review your state’s requirements and consider seeking professional guidance from an attorney. The new year will be merrier and brighter if all of your business compliance obligations are wrapped up and in good order.
RELATED: Prepare Your Business for a Successful Year Ahead with an Annual Goals Meeting