Please forgive me for being so bold, but I am getting tired of people telling me “I don’t have to do annual maintenance for my LLC because it’s not required” and “My one page Articles of Organization from the State is all I need” – Wrong!
There are more and more cases of where the Limited Liability Company (LLC) is “pierced” in a lawsuit and the owner’s personal assets are grabbed by a plaintiff. The reason why…owners are not doing their annual maintenance.
Now it doesn’t have to be expensive, it can actually be easy. It can also:
- Increase your audit protection with the IRS
- Get you more tax write-offs
- Help you create a Board of Advisors for support
- Better build your business and increase sales
- And of course, give you the asset protection you THINK you have!
I have been shouting from the rooftops for years, but it doesn’t seem to be getting through. Small business owners, if you have an LLC or S-Corp you MUST do the following every year or face having no asset protection or even having your entity TERMINATED by the State:
- Have a complete formation of the company with all the supporting documents
- Hold annual meetings and record them in the corporate book
- Renew your entity with the proper Secretary of State
- File any necessary state and federal tax filings (including quarterly payroll reports)
What type of formation records should I have for my LLC?
Well, as I stated above, it’s not one sheet of paper from Legal Zoom© or the Secretary of State. It’s much more than that…and if you DON’T have all the pieces and parts, this will be a major problem in a potential lawsuit. Even the IRS under audit is going to ask for these documents. Banks will ask for it, future partners, and even landlords…etc..
Please complete ALL the documentation. Now if you haven’t…all is not lost. You can ‘tidy up your records’ for lack of a better word or phrase. We call it a ‘Company Clean up’ at our law firm. For a few hundred dollars your LLC can be completed, up to speed and as good as new. You can do it yourself or any law firm can assist. Just don’t listen to anyone that wants to charge you north of $600 or throw away your LLC and start over. Check out our CMP program at KKOS Lawyers and let our Paralegals take care of the clean-up and get your Minutes up to date and ALL the company formation documents you need.
Here are the pieces you should have with your LLC
- Articles of Organization (filed with the State)
- Operating Agreement between the Members and Manager
- Organizational Resolution of the Members
- Corporate Book
- Membership Certificates and Seal or Seals
- EIN IRS Application
What do Annual meetings and Records look like for my LLC?
The general purpose of meetings, minutes and resolutions is to document and authorize acts taken by an entity, company meetings can accomplish several other important goals that we feel are critical to a business’s long term success.
They can be typed up by the business owner themselves, even handwritten, HOWEVER, the important thing is to do them, create the documentation and put them in your corporate book. It’s easy and affordable to simply make sure you hold your annual Member and Manager Meetings. Write down things like what the sales were for the prior year, what you purchased, what you sold, who you hired, who you fired…and then most importantly the plans for the future. What you want to accomplish.
For a more detailed discussion see my other article Corporate and LLC Meetings, Minutes & Resolutions. Whatever, your method to record these records.
The goal is that you will:
- Strengthen the corporate veil and asset protection
- Document goals and objectives of the business
- Structure tax planning and establish bookkeeping procedures
- Create a great reason for a tax deductible trip (at least annually)
- Increase communication between the business owners
- Involve the family members and teach them about the operations of the business
We have a 25 point questionnaire you can even fill out online and then our Paralegals prep your “Minutes” so they are done and look pretty. We ALSO pay the fee to the State and make sure you are in good standing every year (see below). Amazingly, this whole service is completed for $150 per year, plus any filing fees! Check out our CMP program at KKOS Lawyers and let our Paralegals take care of the details.
What does it mean to have your entity cancelled or terminated by the State?
Every state is different, but the far majority of States require an annual report and/or fee to stay in ‘good standing’. If you don’t do it, then the state automatically terminates your entity- oftentimes without even giving you notice they did so.
The result- you no longer have the protection of the corporate veil, and owners and managers are open to lawsuits personally. When you have just been served with a lawsuit, is a bad time to realize your entity has been cancelled as you are far too late to reestablish a cancelled entity.
Also, the entity may no longer bring an action against another party in court. There is a growing body of case law where LLCs and other entities lack standing to bring any action against a party because they have been systematically dissolved.
Some other possible results of cancellation include entity contracts being deemed invalid and partners using dissolution as an excuse to bail on the partnership- Not good.
This is why making sure you understand the rules at YOUR Secretary of State of annual reporting and fees. Sometimes the states sends out notices, and others do not. Put it on your calendar or have a service to help you never forget to stay on top of this.
What are the Tax Filings I need to worry about with my LLC?
I’m so sorry. For those that are new to business ownership, I know this whole area of taxes and reporting can be confusing and overwhelming. This is why we/me are here!! I’ll help you understand this whole crazy area of taxes and explain it in plain English. PLEASE continue to read the weekly E-Newsletter (sign up here), listen to the podcast, and check out my training videos. It will take a little time, but it will come to you.
Here are some of the tax filings you should CONFIRM if you need to file in your situation:
- Federal Taxes. If it’s a Single Member LLC (owned 100% by you and/or your spouse), then you will have to file any operations on your 1040 (probably a Schedule C-if a operational business, or Schedule E- if a rental property).
- Federal Taxes. If it’s owned by multiple people (say 50/50% with you and a partner), then you have to complete a Federal Partnership Tax Return (Form 1065). It is VERY important you understand the reporting process and deadlines for this 1065 tax return. The penalties for not filing on time can really add up.
- State Income Tax Return. This again is different if you are a 100% owner or 50/50 with someone. Make sure you file this State form (if required) at the same time you you’re your Federal return. You typically don’t have to file, unless you are a partnership, if you are in a non-state-tax state such as Alaska, Florida, Nevada, South Dakota, Texas, Washington state, Wyoming, New Hampshire, or Tennessee.
- State Franchise or GE Tax, etc. Some states require a special tax form and payment if you are operating a business or LLC. For example, in California, even if you are a Single Member LLC there is a Franchise tax of at least $800. Texas has a franchise tax for LLCs. Hawaii has a GE tax. The list goes on and on. Make sure you KNOW what the rules are in your State OR the States you are doing business. Talk to your CPA (or get one) and get advice on this. Sometimes you need to upgrade your accountant when you start a business and TaxSlayer© TurboTax© may not cut it anymore (at least for advice and planning).
- Sales Tax. If you are selling a product, sales tax reporting is probably going to be inevitable. Make sure you know the rules and if they apply to you and your operation.
- Miscellaneous Tax Forms. I need to give the disclaimer and it’s hard to list all of the potential tax forms you might face with your LLC. Some counties like Maricopa County in Phoenix require reporting for rental properties. Other counties and cities are now requiring reporting for VRBO© and AirBnb© type income. Not to mention personal property taxes by county, etc… Bottom line, like a said above. Meet with an accountant to figure out what you need to report.
Having an LLC is an incredible opportunity to build wealth with a small business or investment. We love it!! But just make sure you are familiar with your responsibilities as an owner of this incredible small business tool and take your business operations to the next level. Know your State’s rules and get set up on a system with your accounting professional. We produce a ton of free content that will help you along the way and even attending one of our annual events or investing in our education material will better help you succeed in your business!!
* To sign up for Mark’s weekly Free E-Newsletter and receive his Free E-Book “The Top 10 Best Tax Saving Secrets Everyone Should Know” visit www.markjkohler.com.
Mark J. Kohler is a CPA, Attorney, co-host of the Radio Show “Refresh Your Wealth” and author of the new book “The Business Owner’s Guide to Financial Freedom- What Wall Street isn’t Telling You” and, “The Tax and Legal Playbook- Game Changing Solutions For Your Small Business Questions”. He is also a partner at the law firm Kyler Kohler Ostermiller & Sorensen, LLP and the accounting firm K&E CPAs, LLP.