Corporate/LLC Compliance: What to do? What to watch out for?

If you have a Massachusetts corporation or limited liability company (“LLC”) there are certain actions that you need to take on an annual basis to make sure your corporation or LLC is in good standing with the Secretary of State’s office.  Why is it important that your corporation or LLC be in good standing?  If a corporation or LLC is not in good standing there is a potential argument that the entity does not exist, you are operating as a sole proprietor and there is no protection from personal liability that a corporation or LLC would otherwise provide.   To prevent this potential loss of liability protection what should you do? 

Annual Reports for Corporations.  Corporations need to file an annual return with the Massachusetts’ Secretary of State’s office.  This annual return must be filed within two and  one half (2 ½ ) months after the close of the fiscal year.  If your corporation is a calendar year taxpayer, the annual report must be filed by March 15 of each year.    The fee to file the annual report is $125 if you send the form by mail or $100 if you file the form electronically.    

What to watch out for?  There are companies which send out notices to corporations about the time that the annual report is due at the Secretary of State’s office.  The notices are very cleverly written  and indicate the for a fee of $125 (the same amount as the annual report fee) the company will provide the required annual meeting minutes.  While you should also keep annual minutes for your corporation, many people who respond to this solicitation think that this is the annual filing with the Secretary of State’s office.  It is not.  Sending in $125 to a private company for your annual meeting minutes (you provide the basic info about who attended, who was elected director, officer, etc.) is not the required filing with the Secretary of State’s office.  The next time your corporation receives  notice in the mail requesting a $125 fee, be very careful to confirm exactly what you are getting for your money. 

Minutes of the Annual Meeting.   Corporations should have an annual meeting and should keep minutes of that meeting.  The minutes do not need to be elaborate but should say when and where the meeting was held, who attended, who was elected a director or officer of the corporation and what was reviewed.  For example, your minutes could say that on May 1, 2010 all three shareholders of the company met to review the financial records and tax returns for the company for the past year.  The shareholders moved to issue dividends in a certain amount and also reviewed and approved the summary of financial operations for the last year.  Finally the names of the individuals elected as directors and officers of the corporation for the coming year should be stated. 

Annual report of LLCs.   Just like corporations, LLCs are also required to file an annual report with the Secretary of State’s office.  The annual report for LLCs is due before the date of the filing of the LLC’s original certificate of organization.  For example, if an LLC filed its certificate of organization with the Secretary of State’s office on December 1, the annual report is due prior to December 1 of each year.  The annual report fee for LLCs is currently $500.  Although this is much higher than the fee for the corporate annual report, LLCs are not subject to the excise tax that corporations are required to pay.  The minimum excise tax is currently $456 per year.  Therefore, the combined annual fee for a corporation ($125 + $456) is slightly higher than the $500 annual fee that LLCs must pay. 

 Filing the annual report for your corporation or LLC is very important to insure that your corporation remains in good standing with the Secretary of State’s office and that you receive the important protections that corporations or LLCs can provide for your personal assets.

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