Quick Tips to Help Maintain Your Company’s Corporate Status
If you are thinking about starting your own business or have recently incorporated or formed a limited liability company (LLC’s), keep in mind that earning your corporate status is just the first step in protecting your personal finances and assets from business risks and creditors. What many first-time business owners fail to realize is that they must maintain certain formalities to maintain the separateness between person and entity.
The bottom line is that having a separate corporate status has some requirements above and beyond the day-to-day operations of the business. If these requirements are not met, significant legal consequences can ensue, such as collection of debts and levies on judgments against your personal assets.
One note before we dive in: LLCs have a slightly different structure and requirements that differ from regular corporations (discussed here). We’ll go over LLCs in another blog, but for now, here are some quick tips to help maintain your company’s new corporate status.
TIP #1: Document All Corporate Decisions (Shareholders & Directors)
Not only is your corporation required to hold regular shareholder and director meetings, all the discussions and decisions made at those meetings need to be fully documented and recorded in formal minutes or records of those events. Maintenance of the proper records helps protect your corporate status. Your business attorney can assist you in determining the appropriate form and contents of your corporate governance activities if you have specific questions.
TIP #2: Keep Your Financial Records as Detailed as Possible
As a corporation, you’ll need to use a double-entry system for bookkeeping to maintain your tax return records. This is the accepted standard which lists all financial activities of a corporation in two accounts: debts and credits, which also track changes in monetary values. Your CPA can help you determine the most efficient and appropriate methods of record-keeping to fit your business.
TIP #3: File Separate Corporate Tax Returns
Filing your taxes as a C-corporation differs from filing as an S-corporation, sole proprietorship or LLC. If you qualify for S-corporation status you may realize certain tax benefits. Your CPA or other tax advisors are best able to advise you in this regard. In many cases, your business attorney and tax advisors will work together or consult each other when setting up your most optimum business entity structure.
TIP #4: Maintain Separate Identities between Individuals and the Corporation
Whenever an owner, officer, or director signs something on behalf of the company, have them sign in the name of the corporation instead of in their individual name. This would include banking and financial activities such as opening accounts, applying for loans, etc. Anytime you sign in your individual capacity rather than in your corporate capacity you run the risk of personal liability. Thus, all contracts, leases, etc. should be signed by the corporation ensuring it assumes all liabilities.
This is just a brief overview that barely scratches the surface of what you need to do in order to maintain your C-corporation or S-corporation legal status. If you have any additional questions about maintaining corporate status or other related legal issues, call Stephen Rizzieri at 214.434.1017 or fill out the form on our law firm site today.