Summary

Even though this minutiae can be annoying, it’s worth it to put systems in place to stay on top of it.

Filings

The state in which your company is incorporated or organized (i.e., the state where you formed your company) and any other states in which your company is registered to do business (which it should be wherever it has offices) will likely require you to file an annual (or semi-annual) statement of information (or the like), updating the state’s public files with any changes to your company’s address, director/officer composition, or agent for service of process (registered agent). Some states allow you to (a) do this online and (b) to file a “no change” statement if none of your information has changed since the last filing. California, for example, does both for corporations, but LLCs must file by paper. (I have no idea, by the way.)

Taxes

The state in which your company is incorporated or organized and any other states in which your company is registered to do business likely require your company to pay an annual franchise (or similar) tax. These are usually minimal, but need to be paid in a timely fashion to avoid late fees and other potential problems. (More on that below.) Municipalities also frequently require payment of taxes or other fees for businesses that operate within their borders. And, of course, you’ve got your income and employment tax payment (and filing) requirements.

Whether your company is a corporation or a LLC, you’ve got some annoying annual obligations. Click To Tweet

Formalities

Generally speaking, corporations are required to hold annual shareholder meetings (and some are required by their bylaws or applicable law to also hold annual director meetings). With rare exception, these meetings can be conducted virtually, or even entirely on paper (if all shareholders and directors, as applicable, are unanimous in their votes). At the shareholder meeting, the shareholders elect (or reelect) directors, and usually vote to ratify the board’s actions over the past year. They might also specifically approve of more significant decisions made by the board over the past year (though these are often accomplished contemporaneously with board votes during the course of the year), such as adoption of an equity incentive (or stock option) plan, a significant loan or line of credit, or sale/acquisition of an asset (or class of assets). As an aside, shareholders vote their shares, while directors have one vote per director.

Unlike corporations, limited liability companies are not generally required to hold annual meetings of members or managers. However, some states or operating agreements may require annual meetings. Moreover, such meetings may be a good idea, as they provide an opportunity for business partners to check in on the big picture matters that are way too easy to overlook when you’re trying to run a small business.

Other Matters

I recommend an annual insurance policy review. Talk to your broker about what you’re doing that’s different or new – let’s say you’ve started offering SEO or PPC services, for example – and make sure your current policies provide coverage. I also recommend meeting with your CPA at least once annually to discuss and evaluate your finances and strategies, including whether you should look for a line of credit or an increase to a current line. Having adequate insurance and money available to cover liabilities is also something that courts can evaluate in connection with an attempt to “pierce” your corporate veil.

What if you don’t do this stuff?

Some mistakes – like forgetting to file a statement of information – aren’t that big a deal and can generally be easily remedied, but others – failing to pay certain taxes or to observe corporate formalities – can end up being a problem in legal proceedings. If you lose your qualification to do business in a jurisdiction because of failing to pay taxes, you cannot defend your company in court if it is sued (or enforce your company’s rights in court at all), unless and until you “revive” the company in that jurisdiction, which can be costly with penalties, fines, etc. If you fail to observe corporate formalities, you are exposing holes in your “corporate veil,” which protects you and your personal assets from exposure to your company’s liability. So, even though this minutiae can be annoying, it’s worth it to put systems in place to stay on top of it.