What Are My Entity’s Compliance Obligations?

Frequently, the first service I provide to a client is to form a new legal entity (corporation or limited liability company). And frequently, once that entity is formed, the client’s first question is “What are my entity’s compliance obligations?”

This post provides a high-level answer to that question.

(If you form a corporation in California, you can find additional information in the Postincorporation Matters document on the Downloads page – image above.)

Corporate Compliance Obligations

As concerns compliance obligations, the greatest difference between corporations and LLCs is that corporations are obligated to have annual shareholder meetings.

The required action at an annual shareholder meeting is to elect a board of directors. Of course, other matters may be considered, as well. (For more information, please see Annual Meetings: The Basics.)

Generally, the board of directors meets immediately after the shareholder meeting. At that meeting, the board typically appoints officers and conducts any other business it deems appropriate.

For LLCs, meetings of members or managers to address important issues are appropriate. However, annual meetings are not required.

Conducting Business as a Legal Entity

It is essential that the entity, rather than its founders, enter into contracts and identify itself as the author of business communications.

So, for example, the signature block of a contract might appear as follows:

[Name of Corporation or LLC]

By: ____________________________

[Individual’s Name, Title]

Equally important, the entity must have its own bank account, separate from that of its founders. And the entity must process all transactions through its bank account. (The entity may reimburse personnel for amounts they spend on the entity’s behalf, so long as the entity accounts for those amounts properly.)

Most cities or counties require that an entity doing business there obtain a business license.

Other Financial Matters

Not too many surprises, here. The entity typically must:

• Obtain its own Employer Identification Number (EIN).
• File annual state and federal tax returns.
• Make quarterly estimated tax payments.
• If there are employees, withhold and pay employment taxes .
• As applicable, pay sales, use, or real or personal property taxes.

Employment Compliance Obligations

Employees  dramatically increase a business’s administrative overhead. Additional internal paperwork includes:

• At-will employment offer letters (or employment contracts for senior executives).
• Proprietary Information and Inventions Agreements.
• An Employee Handbook.

Employers need to be especially careful to comply with state wage-and-hour laws and to post required workplace notices.

Dana H. Shultz, Attorney at Law +1 510-547-0545 dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.