Protecting Your Business Liability Protection
In my last blog post I made the case for the beginning of the new year being a great time to set some goals for your business. The New Year is also a great time to make sure your "legal" house is in order for your small business. Getting the legal issues of your small business taken care of at the beginning of the year means you don't have to worry about them again until next year! What I mean my "legal" issues is making sure you have renewed your business entity ("S" Corp or LLC) with your state. It also includes updating your corporate record book (yes, you need a corporate record book!) with any agreeements your buisness made in the past year. You will also need to hold an annual meeting each year to make sure your Corporation or LLC is in good standing with your state.
Many small business owners might read the above paragraph and be surprised to learn that they have to file an annual renewal to remain a legal business in their state. If you are a sole proprietor your registration is good for 10 years in my state of Minnesota, but if you are an "S" Corp or an LLC you are required to file an annual renewal and pay a small fee. I have had many SBDC clients that when asked about the legal structure of their business have informed me that they were an LLC (they even show me the notarized document from the Secretary of State) but when probing further I find they have never filed an annual renewal. Not filing an annual renewal could void the liability protection of your "S" Corp or LLC.
One of the main reasons a business owner chooses an LLC or an "S" Corp is so their personal assets are not at risk for something the business does. Most small business owners are not aware that the liability protection they expect from and "S" Corp or LLC can also be voided if it can be proved they are not "acting like a Corporation". In order to "act like a Corporation" you must have a formal corporate record book that includes all organizational documents, stock certificates or member control agreements, and each year you must include a document with the minutes of an annual meeting.
Now if you are a one person "S" Corp or LLC you might think it silly that you have to hold an annual meeting when all the ownership of the business, the entire Board, and all officers of the business are YOU! It doesn't matter; your business needs to hold an annual meeting and it must be documented if you want to maintain the liability protection you expect from your "S" or LLC. Doing these few simple things keeps your business in good standing with your state and more importantly, keeps liability protection in place for your family and your personal assets.
