ANNUAL COMPLIANCE REQUIREMENTS
Renewal vs. Meeting. What is needed?
Are you curious, or possibly confused, about the differences between your company’s Annual Renewal and Annual Meeting requirements? You know both are necessary to keep your company in compliance but may not have a clear understanding of the purpose of each or how to make sure each are fulfilled… and done correctly.
You work with a Bookkeeper and Accountant to satisfy your accounting and tax filing requirements (which may also include payroll and sale taxes). Just as you properly document and prove your business’ financial activity, you are required to annually renew your entity (deadline is specific and different based on when entity was formed). Plus, you must also satisfy certain compliance requirements and prove your business’ corporate activity. This is achieved by conducting and properly documenting the company’s Annual Meeting.
Annual Renewal (State) Requirement:
You may already be aware, but to keep your entity in Good Standing with the State, your company must be Renewed by a specific deadline. Otherwise, your business could be considered “Not in Good Standing”, “INACTIVE” or even worse, DISSOLVED in the eyes of the State.
Annual Meeting (IRS) Requirement:
Did you know all corporations, regardless of their size or number of owners, are required to hold formal corporate meetings and document important decisions? Not surprisingly, owners of small corporations often put off dealing with this paperwork and formality, thinking it does not apply to them. This approach, however, can be extremely risky. For example, if you do not document important tax decisions and elections, you may lose crucial tax benefits and risk having liability protection.
Even worse, if you neglect basic formalities required under law, you may lose the protection of your corporate status. For example, if your business is pursued legally, a court may disregard the corporate entity altogether, leaving its owners personally liable for company debts and/or actions.
Perhaps most important, the IRS frowns upon skimpy or non-existent corporate records when considering whether to go after corporate principals personally for unpaid corporate income and employment taxes. In other words, if you do not respect and keep an ongoing record of the separate, existence of your company, it could be determined your business is just a corporate shell set up to insulate business owners from personal liability for business and employer taxes. In this unhappy scenario, if the business owes employment taxes and unpaid corporate income taxes, the IRS or state employment tax agency may seek to hold the business owners personally liable for taxes, penalties, and interest.
As an owner of a corporation, you must ensure an Annual Meeting of Shareholders & Directors is held and properly documented. Although these Minutes are not filed with a government agency, they must be up-to-date and ready to produce in the instance of an audit or lawsuit and are needed to open/change bank accounts, pursue financing or a business license/application or just prove the status of your business. You’ll also need to produce accurately-prepared Minutes just to address some “simple” day-to-day situations.
No one wants to think there will ever be a life event (i.e., death, divorce, disgruntlement) that would occur and negatively affect their business. The fact is – it happens every day! Properly documenting changes and the status of your company’s structure is vital in streamlining so many processes on a day-to-day basis – being organized and having what you need when you need it -- will not only save you time but money too AND give you peace of mind things are in order!
The best way to steer clear of these types of issues is to ensure your company is properly maintaining its corporate renewals AND minutes. Your Minutes must contain specific resolutions documenting the discussion and/or approval of important business decisions. By doing so, you will have a provable paper trail of key business and financial decisions you made on behalf of your business. This practice will not only result in your business complying with its requirements, but it will also provide an organizational tool and reference which will prove to be extremely helpful as you navigate many other aspects of running your business.
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