Limited liability companies (LLCs) are among the most common business entities in the US. And though there's plenty of accessible advice on how to start an LLC, there aren't always relevant insights on how to maintain compliance over time (an issue that some business owners find challenging). Learning the ins and out of compliance will give you legal protection and peace of mind.
Five tips for LLC compliance
Entrepreneurs and business owners love LLCs. They're extremely simple to establish, do a good job of limiting personal liability and require very little paperwork. There are substantial tax advantages, flexibility with ownership, and significant versatility in terms of how the LLC can be managed. But as is the case with any legal business entity, managing a business doesn't stop with incorporation. You also have to think about compliance.
As you manage your LLC and seek to keep it compliant, you need to think about the day-to-day decisions you're making and how they impact the bigger picture. Here are some specific issues to think about
Choosing the right registered agent
There are very few requirements for maintaining LLC compliance, but it's important that you pay attention to the regulations that are in place. For example, you have to choose a registered agent. This is simply a person or entity that's designated in the articles of incorporation to accept legal documents and notifications from a state office on behalf of the LLC.
While you can technically operate as your own agent, this is a bad idea. This limits your flexibility in terms of closing your office (since you must always be open to accepting service of process documents). It also opens you up to potentially being served with legal papers in front of customers, employees, friends, or family members.
The better solution is to work with a registered agent service that's reliable and familiar with all of the ins and outs of how to carry out these responsibilities. It's easy, cost-effective, and prevents you from having to think about one extra thing.
Always use the correct signature
Whenever you sign documents for your company, it's important that you use the correct signature. Otherwise, you could end up in a compromising situation.
First off, always use the full company name with the correct suffix such as L.L.C. or L.C. Secondly, always sign your name as a member of the company. This would look like: Smith & Peterson, L.L.C., by John Smith, Member
This may seem like a small detail but there have been cases where a person forgot to add the title to a signature and ended up being held personally liable for a debt that would have otherwise been held by the company.
Avoid piercing the corporate veil
One of the primary reasons for opening up an LLC is to avoid being held personally liable for business debts and legal issues. However, if you aren't careful, you could end up piercing this 'corporate veil'. And once the corporate veil is pierced, there's no turning back. From then on, you can be held personally liable.
The corporate veil can be pierced relatively easily and innocuously. For example, let's say you use a business credit card to purchase something for yourself. Technically, this could be used by a judge to rule that there's no separation between the company and you, the owner.
Notify the state of any changes
Any time you make significant changes to your business – such as a new address, change to the name or adding a new member – you have a responsibility to notify the state in which you're incorporated. A failure to do so could create complications with your business.
One of the many advantages to an LLC is the fact that you don't have to keep meeting minutes. But just because you don't have to, doesn't mean you can't or shouldn't.
Meeting minutes are useful as a form of protection. Should your LLC ever grow or change into another type of entity, having minutes on file will
If you've never kept minutes before, it's a fairly simple process. Be thorough and meticulous so that there are no questions about what was discussed.
Put the focus on your business
When you're unsure of how to maintain LLC compliance, so much of your energy is drawn away from your core business and channeled towards administrative details and tasks that are time-consuming and draining. By making an effort on the front end to learn the ins and outs of how LLCs work and what you can do to stay in the clear, you can save countless hours of frustration and redirect your energy towards the tasks that matter – like marketing, sales and customer service.