A quick check on Sunbiz.org will show you that small business owners are allowing their limited liability shields to disappear. Are you one of them?
Do you file your annual reports on time and correctly? Do you have annual minutes for each year of business? Do you take the other steps necessary to keep your entity’s liability shield in place?
If you aren’t, why did you go to all the trouble of creating a business entity in the first place if you aren’t going to keep it legally healthy?
Maybe you did not realize you had to or maybe you have it on your list but never get to it. Either way, we need to have this conversation. Whether you are a business that is one year old, or you’ve been around for decades, this is important!
It all boils down to whether you treat your business entity as “separate” from you personally. I often tell my clients to think of the business entity as another person that is sitting in a chair at the table with you. You each have your own chair and separate space. You cannot “sit on the lap” of the business entity because the law will not see the business entity underneath you. You must allow the business entity to stand (or sit) on its own beside you.
How do you do that? Here are some of the requirements that you must keep up with and why they should be important to you:
Annual Reports – Every year a business entity must file an annual report with the State of Florida. If you do not, your business will be administratively dissolved and you will become personally responsible for the debts, obligations and liability of the business. It always surprises me how many small businesses are administratively dissolved every year.
Updating Information – You are responsible for keeping the information with the State current. If officers, directors, managers or members change, you must update that information. Your contact information must also be current. If you mislead anyone with incorrect or outdated information, you could be held responsible for the outcome.
Internal Documents – Certain internal documents are required for corporations and LLC’s. Periodic meetings (at least annually) should be held to document the major actions of the entity and their approval. Without these records, internal inconsistencies and disagreements are bound to arise. We’ve seen many cases where the ownership of the business was in dispute because there were no internal documents showing who owned the company! (Not to mention all the tax problems that are involved with that.)
Taking these actions isn’t hard. But it is time consuming and unfamiliar. That is why many small business owners ignore them, only to find out later why they are so important. Unfortunately, sometimes they find out too late to fix it and personal liability becomes a real issue for them.
We’ve also seen business opportunities disappear because potential partners, investors and/or lenders are not interested in taking a chance on a messy business that doesn’t have a strong liability shield. It can be very embarrassing for small business owners to admit that they do not have these basic requirements in place.
There are many other problems we’ve seen that are created by the failure to keep up with these basic requirements. The way to avoid all the hassle is to take care of these tasks each year.
Be honest and realistic with yourself. Are you going to take responsibility for making sure these tasks get done? If you are, that’s great. If you don’t want to do it yourself, get help from your small business attorney. Many of us offer programs to handle these matters on an ongoing basis. The most important thing is that they all get done – each and every year that you’re in business. Just do it!
This blog post is offered for informational purposes only and is specific to Florida law. For specific advice, please contact a business attorney and discuss your particular needs.
ABOUT ELEVATE: At Elevate, we maintain an outlook of optimism while being realistic in protecting against what could go wrong. We believe in promoting great relationships between our clients and their clients – and we do that by creating service contracts they can use to demonstrate honesty and build trust.