|When a corporation or limited liability company is formed, the business owners enjoy limited liability protection, which means that the business owners are not typically held responsible for the debts of the company. This limited liability protection, however, is not guaranteed. By what is called “piercing the corporate veil” one may reach the assets of the business owners of the corporation or limited liability company.
This can occur when the business owners (1) have not complied with state requirements (called “statutory requirements”), and (2) have not undertaken what are called “corporate formalities”, to maintain a separate corporate identity from that of the business owner (themselves). It is therefore of utmost importance that, as a business owner, you maintain a separate corporate identity (for example, have separate bank accounts for the company and do not commingle personal and business funds). To do this, you must strictly adhere to the statutory requirements, and you must also follow general corporate formalities, such as holding an initial meeting of directors, distributing membership interests or stock, maintaining corporate records, and more.
Annual reports, or in some states, biennial reports, are the thrust of the statutory requirements . Each state will require a report, along with payment of fees, in order for the company to remain in good standing and to continue doing business in the state. Failure to file this report, or late filing, may result in the company falling into “bad standing” or “suspension” which can ultimately lead to “revocation of corporate privilege” or “administrative dissolution”. Should that happen, the business owners would no longer enjoy personal liability protection.
As a new business owner, you should be aware of the continuing statutory compliance and corporate formalities that are required and, where not required, suggested, in order to remain in good standing with your state of formation and to maintain your personal liability protection. Please note this list is not exhaustive, but merely an overview for your reference. If you have a corporate kit, you will find samples of many of the documents and notices outlined below, and within the kit, will find the appropriate places to insert your documents for appropriate record keeping.
NOTE: The purchase of a corporate kit may be the single best investment under $100 you can make. It includes many of the forms you need such as sample corporate resolutions, annual meeting forms, share or member certificates, share transfer ledger, company seal, etc. However, its single most important function may be to serve as the one place in which you keep all of your corporate records which may be irreplaceable or, at least, extremely expensive to replace.