The Entity Upkeep Guide
This guide summarizes the most important things you need to do to maintain your LLC or Corporation (your "Company") and protect your limited liability status.
Every Company has its own unique needs and some steps may not be included in this article.
REGISTER YOUR LICENSES & PERMITS
You will need to register one or more of the following licenses and permits to legally operate. These digital forms are relatively simple to complete and include questions which are generally best answered by the owner(s) of the business. As such, we advise clients to register these directly, but we are happy to assist if requested. If you previously registered these licenses and permits as a sole-proprietor or general partnership, you will need to re-register them in the name of your Company.
1. Local Business License with the City - Required for all businesses to legally operate. Generally, you must file annual income reports with the city and taxes may apply when your income reaches certain levels (i.e. over 100k). Below is the application for the Los Angeles Business license, though if your business is based in a different city such as Santa Monica or Pasadena, a different registration may apply. Register for free with Los Angeles below:
2. California Seller's Permit - Required only if you sell tangible goods in California. Not required for services only businesses. If applicable, register with California below and follow the corresponding instructions:
3. Los Angeles County DBA - Required only if you are "doing business as" a name different than the legal name of your entity. For example, if your LLC is called "Traction Enterprises LLC" but your business is called "Purple Salt Beauty Supplies", then you would need a DBA for your business name. However, if your LLC name and business name are the same then a DBA is not required. If applicable, register your DBA(s) in Los Angeles County below and follow the corresponding instructions:
4. Statement of Information - You will need to re-file your statement of information with the Secretary of State every year for Corporations and every two years for LLCs. File your annual or bi-annual statement of information below as needed and follow the corresponding instructions:
5. Other Licenses and Permits - Every business is unique and certain businesses require additional licenses, permits, or regulatory compliance. For example, if you sell alcohol, food, pharmaceuticals, or operate a brick and mortar shop additional compliance may be required. Check with city, county, state, and federal agencies for applicable permits and compliance measures. We are happy to assist.
- As a registered Company, you will get a lot of scam letters in the mail that may appear as though they are from the government. A common scam is a letter from the "CORPORATE COMPLIANCE CENTER." Generally, they will ask you to file some unnecessary papers along with a filing fee. Double check to see whether the papers are endorsed by any government entity. Often they are not. If you are unsure whether compliance is necessary, consult with your attorney.
FINANCES & TAXES
- Bank Account: Open a separate bank account for your Company. You will need to bring your EIN and stamped Articles to the bank to open this account.
- Separate Finances: Keep your business and personal finances separate. You can pay yourself from the business, but do not use the business bank account for non-business related expenses. It is ok to invest personal money into the business, but document it as a loan or investment in the company. Check with your accountant about how to manage finances.
- Protect Your Limited Liability: If you co-mingle business and personal finances, it may damage your limited liability status.
Consult with an accountant to ensure you are in full compliance with all tax requirements and take advantage of all tax benefits available. There are deadlines, so be sure to coordinate with an accountant as soon as possible.
- Local Business License: As noted above, many cities require that you register your business with the city and pay any applicable taxes.
- State: California has a minimum annual franchise tax of $800 per year. This amount becomes due approximately 3.5 months after you register your entity, and then annually thereafter. If your Company is a Corporation, this fee may be waived for the first calendar year.
- Federal: Your Company will also need to file federal tax returns with the IRS. Coordinate with your accountant to complete all filings properly and on time.
Consult with your accountant about any tax elections that may help you save money on taxes. They may recommend one or more of the following:
- S-Corp Election: Whether you are a Corporation or LLC, your entity can be taxed as an S-Corp for federal and state tax purposes.
- 83(b) Election: Depending on the nature of your ownership, receiving vesting equity may be a taxable event. This election may reduce your tax burden by having this taxable event occur now, rather than later when your company is worth more money.
THERE IS A 30 DAY DEADLINE TO FILE THIS ELECTION AFTER YOU RECEIVE YOUR EQUITY (i.e. sign an equity grant or operating agreement)
USE & LEGITIMIZE YOUR COMPANY
LET PEOPLE KNOW WHO THEY'RE DEALING WITH
Let the world know that they are engaging with you as a Company, not you as an individual. This is an important step in maintaining your limited liability status.
- Contracts: When engaging in contracts related to your business, make sure your Company is the party to the contract, not you as an individual.
- E-mails: Similarly, include your Company name in your e-mail signature line.
MEETINGS & MINUTES
- At least once a year you should host a meeting with the owners of your business and keep minutes summarizing what was discussed -- even if you're the sole owner of the business having meetings by yourself.
- Keep all of your Company documents organized together in a safe place (i.e. a corporate kit or binder) and create secured online digital back-up copies as well. Use Company letterhead and label documents appropriately. None of this needs to be filed anywhere, but it helps protect your limited liability status by legitimizing your Company.
GET YOUR LEGAL TOGETHER
Check out our Venture Checklist for other recommended steps for your Company, including contracts, intellectual property registrations, estate planning, and more.
This guide is for informational purposes only and is not legal advice. Please contact us for professional assistance.