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Keeping Your Corporation in Compliance This information is presented for educational purposes only. We suggest you talk to your attorney or accountant to see if this information would be beneficial to you and your business needs | ||||||||
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Your Corporation Must Take Care of Certain Compliance Issues When your corporation is first set up, and throughout each year, there are certain things your corporation must do to comply with laws and regulations governing the entity. One of these is an annual filing of Directors with the State in which the entity was incorporated. Failure to do this can result in several serious penalties and even loss of your corporation's status. | ||
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Michael Johansson hired an attorney to form his corporation in Illinois in 2003. During the first year, he was able to obtain a $500,000 bank loan for the corporation to expand his plant and buy new equipment. A year later he moved his office from the temporary space he had been in to a larger facility on the other side of town to accommodate the new equipment. The fact that he was supposed to file an annual report had escaped his mind and in the move, the State's notice was lost or misplaced. In late 2005, the bank notified him that they were calling due the loan because he no longer had a corporation. In checking into this, he found the State had dissolved his corporation for non-compliance with his annual filing. In January 2006, Michael Johansson filed for bankruptcy, having lost his company and all its assets. | ||
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States are unforgiving. If you fail to file your annual report, or meet other compliant regulations and laws, you could lose your corporation and not be able to get it back without paying large penalties and fines. You could also lose the liability protection of the corporation and end up paying higher taxes. It is claimed that 95% of all corporations are non-compliant, especially small corporations. Whether your corporation is large or small, has hundreds or no employees, the same laws apply. And the State considers it your responsibility to keep your corporation in good standing by following the rules and regulations governing its existence. | ||
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Harold Dawson was the sole stockholder of a successful stationers store. His one employee ordered supplies regularly from James Hargrove, a supplier of greeting cards and other supplies. Over time, the stationers store failed to pay Mr. Hargrove for his supplies and he eventually sued the corporation, and Harold Dawson individually. The Appellate Court of Kentucky pierced the corporation's veil and held Dawson personally liable for his corporate debts. The court was able to do this because the corporation: | ||
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All corporations, no matter their size, number of employees, number of Directors, or volume of business, must take the following actions: | ||
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Barbara Reingold, an attorney and marriage consultant, formed a corporation in order to sell CDs of her consulting issues and keep it separate from her law practice. She hired two women to handle telephone orders, package, and ship the CDs. Soon her business was booming; however, one batch of CDs that were shipped to an internet distributor were blank. When they tried to contact the corporation, they found no listing, address, or telephone number other than Reingold's attorney name and number. Thinking they were in for a legal battle, the internet company hired attorneys to sue the corporation, and its Directors individually. When the Iowa Secretary of State's office showed that Barbara Reingold was the sole Director, the attorneys began checking on the corporation. When the court issued a subpoena for the corporation's records, they found that Reingold had co-mingled funds from her corporation and law practice, kept no separate financial records of income or expenditures and no records of minutes, meetings, corporate actions, or resolutions to act. The Appellate Court of Iowa pierced Reingold's corporate veil on the grounds that it was nothing more than an alter ego and not actually a corporation. | ||
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Keeping a corporation in compliance is not a difficult thing and can be accomplished by merely paying attention to the rules and regulations that govern a corporation. Records need to be kept, minutes recorded, resolutions and voting listed, annual report filed with the Secretary of State of the state in which the entity was incorporated, and keep corporate funds separate from all other funds, income and expenditures. | ||
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LEARN ABOUT BUSINESS ENTITIES LEARN ABOUT LLCs | DISCLAIMER: The information provided on this site is for informational purposes only and is NOT to be relied upon as legal advice. This service is not a substitute for the advice of an attorney and we encourage users to have all documents created on our site reviewed by an attorney. No attorney-client relationship is established by use of our online forms system and the user is not to rely upon any information found anywhere on our site. THESE FORMS AND ENTITIES ARE SOLD ON AN "AS IS" BASIS WITH NO WARRANTIES OR GUARANTIES. If you wish personal assistance in deciding whether the document or entity found on our site is right for you or desire representations and warranties upon the legality of the document you are purchasing in the jurisdiction you will be using it, contact an attorney licensed to practice law in your state | |||
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