Is your business established as an LLC, Corporation or S-Corporation?? Many business owners recognize the advantages of properly establishing a legal entity when they begin their business. With proper planning and advice in the selection of the appropriate entity, based on specific circumstances and needs, a business owner can achieve important liability protections as well as income tax advantages. However, many owners do not realize that there are certain “corporate formalities” that must be observed on an annual basis (at minimum).
The State of Illinois requires that Corporations and LLCs file an annual report. The filing of this report is often neglected by business owners, as it is not a calendar year filing, but is due on the annual anniversary date of the establishment of the Company. The consequences of neglecting to file the report timely can be financial penalties, and ultimately the dissolution of the entity by the Secretary of State.
In addition to the annual Secretary of State filing, a corporation is required to maintain a corporate record book with specific requirements. The corporate record book must be updated regularly (at least annually), and is most easily maintained by a qualified attorney.
What are the consequences of failing to observe these “corporate formalities”? There are specific cases on record where the corporate veil was “pierced”, and liability protections as well as tax advantages were lost due to lack of, as well as improper, recordkeeping. Did you know that as a standard audit procedure, the IRS requests to review the corporate record book to ensure that it is up to date?
Much like your automobile, home or body, your Company must be properly “maintained” on a regular basis. The choice is yours; contact a qualified accountant or lawyer and pay a few dollars on an annual basis to maintain your Company’s status, or risk significant financial consequences in the future if your “corporate formalities” are not maintained. Make it a point to begin “acting formally” and you will have “Peace of Mind” that the business you have built is properly protected.
About the author: Dan Sawchuk, CPA, is a co-founder of the LaCo Business Blog. Dan is the Business Development Manager with Accounting Freedom, Ltd. and Payroll Specialists, Inc. in Mundelein, IL. You may contact Dan directly at Dan@accountingfreedom.com.
