by Deborah Sweeney, CEO of MyCorporation.com
I cannot begin to stress how important it is to make sure your business stays compliant with the state. Small business owners have a tendency to procrastinate when it comes to filing important paperwork and paying state fees, but if your business falls out of good standing with the state you will have to pay, both monetarily and with your time, to get your company compliant again. It’s a much, better idea to instead just buckle down and stay on top of everything, especially these three required areas.
Your Estimated Tax Payments
You really don’t want to test the boundaries of government oversight when it comes to taxes and the IRS. Anyone who is self-employed and expects to owe more than $1,000 when they file their return has make quarterly estimated tax payments. If your business is a corporation and you expect to owe more than $500, you also have to make estimated tax payments. The IRS does provide instructions on how to determine estimated tax, and when payments are due – as a quick heads up, the next due date for 2013 is September 16th. For individuals, these instructions are part of the 1040-ES package, and for corporations the instructions are part of the 1120-W. Now, it is okay if your calculations are slightly off, but if you’re grossly underpaid you will be hit by some steep fines. Paying estimated taxes can feel a bit like trying to predict the future, so most accountants recommend you pay at least 100% of the taxes you paid last year. If you are really worried, re-estimate in the middle of the year (August is a good month to do this during) and see how close your estimates were to what you actually owed during the first two quarters.
Your Annual Reports
If you run your business as a sole-proprietorship, you don’t have to worry about annual reports – though we do recommend reconsidering your business structure. But, if your business is structured as an LLC or a corporation, most states will require you to file a report on your business and pay a fee every year. This report is meant to ensure that the information filed with the state, like who your registered agent is and where your business is located, is up to date. Not filing an annual report is one of the quickest ways to fall out of good standing, so make sure you always mark your calendar with when you need to file.
Respect Corporate Formalities
Neither sole-proprietorships nor LLCs have to worry about adhering to corporate formalities, though most business advisors suggest that LLCs should still hold annual meetings, adopt an operating agreement, and document any business decisions and financial activity for the sake of legal protection. Corporations, on the other hand, are required to adhere to strict, formalized operating procedures. When you form a corporation, you must hold an initial meeting for the directors to adopt bylaws, elect officers, and issue stock. After that, you have to have annual meetings for the directors and the shareholders, and keep the minutes for these meetings in your records. Business and financial activity must also be documented, and nearly any change to the business has to be adopted through corporate resolutions. It is easy to fall behind on the many formal requirements that corporations have to adhere to, but if the state looks into your records and sees you aren’t following the rules, they can revoke your status as a corporation. So keep detailed records and respect state requirements.
Staying compliant with the state can be a very time-consuming, arduous process, but it is something that every small business needs to do. Make sure you know exactly what deadlines you have to file by, how much money you have to send along, and what hoops you have to jump through to stay compliant. The last thing you want is to have to pay exorbitant fees and file a bunch of paperwork to get back into good standing, and putting in a little effort now will save you from having to worry and stress about your business’s standing later on.
About the Author:
Deborah Sweeney is the CEO of MyCorporation.com. MyCorporation is a leader in online legal filing services for entrepreneurs and businesses, providing start-up bundles that include corporation and LLC formation, registered agent, DBA, and trademark & copyright filing services. MyCorporation does all the work, making the business formation and maintenance quick and painless, so business owners can focus on what they do best. Follow her on Google+ and on Twitter @deborahsweeney and @mycorporation.