Remember when you filed and were granted your LLC? You probably filed for an LLC for many reasons. Among them, shelter from legal liability as well as the ability to use your business name on official correspondence. Beware, though. In most states, applying for an LLC, paying the fee, getting your paperwork isn’t enough to keep it current.
Take the State of Florida, for example. Recently they sent out reminders to anybody with a registered business in the state who hasn’t yet fulfilled the requirement to file an annual report with the state. The letter states that if corporations and LLCs do not file their annual report by a certain date, their business will be officially dissolved and a reinstatement fee will have to be paid to re register the company. Additionally, filing the annual report late results in a $400 late fee. For small or new businesses, this non-negotiable fee can be a large expense.
But a few fees and penalties are the least of a business’ problems. When a business files for corporate or LLC status, the protection that they gain allows the business to shield the individual shareholders from personal liability as a result of negligence. If Company X who provides childcare for local clients is sued by one of their clients, with LLC or corporation status, only the business can be sued and should the customer prevail in their lawsuit, only the assets held by the business can be used for payment of the judgement. The individuals assets of shareholders, in most cases, cannot be garnished. The corporation or LLC is legally a separate entity. This is often referred to as the corporate veil.
The corporate veil is not automatic. When a business applies and receives LLC or corporate status certain actions must or must not take place in order to keep the corporate veil in tact. Among those, paying corporate expenses with a business account and maintaining records and reports separate from individual financial records. If a business is sued attorneys will attempt to pierce the corporate veil by proving that a business wasn’t operating as a business but instead as an individual. Not only are you subject to fines by your state but also the potential to losing your designation as a separate entity.
For those who have trouble keeping track of their reporting responsibilities to their state, some business registration services offer reminder services at a low cost. If you used a service to register your business contact them about reminder services as well.