Optima Law Group Blog

Corporate Maintenance: I Incorporated – Now What?

Congratulations on making it through tax season! Just like filing taxes each year, there are other things required annually if you have a corporate entity, in addition to the standard tasks that must be completed initially after incorporating. You may think that after the entity is formed, everything is complete – this is not the case. Generally, it is advised that a corporation do the following after its initial formation:

1.       Conduct business as a corporate entity which means to reflect the corporation’s full legal name,       address and telephone number on invoices, correspondence and letterhead, signage, listings, lease agreements, etc.

2.       Check to see if local business licenses are required where you are doing business (E.g. city, county, etc.).

3.       Make required annual state filings and pay associated annual state fees (note: California also requires a filing within 90 days of incorporation).

4.       Hold, at least, annual meetings of the shareholders and meetings of the board of directors, and properly document these meetings.

5.       When offering, issuing, or selling securities be aware of and adhere to federal and state securities laws, especially given the broad definition of a security.

6.       Protect the corporation's valuable patent, trademark and trade name assets by taking the necessary steps to prevent against loss through improper timing, usage and infringement. This can be registering your corporation’s name or logo with the USPTO for example, or requiring employees to sign agreements guaranteeing the safekeeping of trade secrets, confidential information and ownership of intellectual property.

7.       Obtain appropriate insurance to match your business activities.

8.       Comply with local zoning laws.

9.       Acquire health, police, and fire permits, if applicable.

10.   Register the corporation with the Securities and Exchange Commission ("SEC") if you choose to raise capital, and then complete the necessary filings (blue sky, etc.) before or immediately after the first sale (as required by the states involved).

11.   Create an Equity Incentive Plan for employees in the form of stock options, if applicable.

12.   Establish and execute agreements such as employment agreements, board of directors agreements, advisory agreements, consulting agreements, confidentiality agreements, license agreements and the like.

13.   Document the corporation’s debt or expense obligations. Make the balance sheet, income statement, and a statement of changes in financial position for the fiscal year, etc., available for inspection, if required.

14.   Keep personal and business finances independent of one another at inception as well as moving forward. This starts by opening a bank account solely for the corporation. “Piercing the corporate veil” is legal slang to describe a situation when an entity’s legal existence is ignored because the owners neglected to treat the corporation as a true and separate entity (E.g. keep their personal expenses and finances separate from the corporation’s). This can be problematic because if a business comes up short and cannot pay their creditors due to the owners using the entity’s money to pay personal expenses, the creditors could be entitled to go after the owners directly.

That was just a summary of some of the numerous responsibilities a newly formed corporation must be cognizant of! As previously mentioned, annual maintenance, by way of annual “minutes” (described below) and annual state filings, must be done for a corporation in order to keep it in good standing. In order to stay compliant with federal and state laws, a business must ensure its maintenance for the duration of the entity’s life. Each year (depending on the state of incorporation), corporations must make an informational filing with its state of incorporation. This must be done regardless of whether there were any changes or not, and includes general information such as the names and addresses of corporate directors and officers, etc. Annual corporate maintenance requirements vary by state, but California law, for example, requires shareholders meet at least annually to vote on electing directors and discuss other key business decisions. A record, listing the issues that were presented and voted on during the meeting – known as “minutes” – must be documented and kept on file, and then certified by the secretary. This not only catalogs the results and decisions made during the meeting, it also serves as evidence that the meeting took place should compliance ever be questioned.

Although it is extremely important that a corporation comply with the annual requirements in a complete and timely manner, attending to this sort of maintenance can easily be overlooked or inconvenient to businesses. For these reasons, many of our clients prefer to hire our Firm to maintain their companies’ corporate records.  We offer a program of standard maintenance to keep your corporation compliant for a flat fee, which includes:

1.       Annual state informational filing in the state of incorporation, as needed;

2.       Preparation of standard minutes for one annual meeting of the shareholders, or an action by written consent in lieu of one annual meeting of the shareholders;

3.       Preparation of standard minutes or consents for one additional shareholders meeting, upon client’s request;

4.       Preparation of standard minutes for one annual meeting of the board of directors, or an action by written consent in lieu of one annual meeting of the board of directors; and

5.       Preparation of standard minutes or consents for one additional board of directors meeting, upon client’s request.

Suggested article for additional information: https://smallbiztrends.com/2011/06/corporation-llc-in-compliance.html