Learn how to maintain an LLC to ensure your new business stays compliant both on state and federal levels.
How Do You Maintain An LLC?
Forming an LLC is a dream come through for any business owner. But the work isn’t completed after the initial LLC formation process. There are many steps to maintaining the LLC and making sure it has a good standing with your state. Once you know about these steps, it is quite easy to maintain your LLC on an ongoing basis.
What is LLC Maintenance?
Once you form your LLC, there are many maintenance requirements that help protect the entity and keep everything in good standing with the IRS and your state. LLC maintenance rules may differ depending on the state where the business is. But as a rule of thumb, all maintenance work including taxes, fees, paperwork, and other filings should be done every year. Although the majority of LLC maintenance work is ongoing, there are one-off tasks that you may need to complete to ensure compliance and keep things organized.
The Basics of Maintaining Your LLC
Even though LLC maintenance can vary from state to state, this article takes a close look at the core components of LLC maintenance, which are fairly common across the board.
Articles of Organization
The articles of organization are created during the initial formation of your LLC company. This is a legal document that is used to establish a limited liability company at the state level. Contents of this legal document include liabilities, rights, duties, obligations, and more for all owners of the LLC. In many cases, the information on this legal document will stay the same for some time. There are situations where you may have to amend the document and file the amendments with the Secretary Of State.
Examples of a situation that would require amendments to the articles of organization include:
- Registered agent change
- Change of LLC name
- Changing the financial structure or taxation of the LLC
- Address change of the registered agent
- Change of management structure of the LLC
Updates to the LLC’s operating agreement aren’t included in the amended articles of the organization since the operating agreement is an internal document rather than a state compliance document. If you are not sure whether a specific situation would trigger an amendment to the articles of organization, you should consult with a legal professional who will guide you on your state laws. The official process of amending the articles of the organization may vary by state. But you should be prepared to incur a small one-time fee for each amendment.
Annual Report
Most states require an LLC to file an annual report. This is known as the statement of information (SOI) in most states. In California, an LLC should file an SOI using Form LLC-12 with the Secretary Of State. The information should contain publicly accessible information about your business such as the address of the LLC, registered agent information, and member information. In fact, as per California LLC rules, you should file an SOI within 90 days after filing the articles of the organization. Then, you should file a new SOI every two years – whether or not the information about your LLC changes. You should be prepared to pay an annual filing fee when filing the SOI.
Business Licenses and Permits
Most LLC companies need one or more licenses to function. The type of license or permit may vary depending on the industry and location of your company. Not all of these licenses or permits need to be updated annually. You should know when each permit or license expires & what the process looks like for renewing the license or permit. Failing to renew the license or permit will increase the liability for your LLC and potentially land you in some compliance-related issue. In some states, incorrect or expired licenses can result in fines or business foreclosures.
Here are some examples of licenses and permits that you should maintain for your LLC:
- Zoning and land use permit
- Liquor licenses
- Health permits
- Building permits
- Reseller permits
- Occupational licenses
In fact, there are more than 150,000 filing jurisdictions countrywide. Certain cities & counties have rules regarding business licenses in addition to state requirements.
DBAs & Fictitious Business Names
Most LLC companies need one or more licenses to function. The type of license or permit may vary depending on the industry and location of your company. Not all of these licenses or permits need to be updated annually. You should know when each permit or license expires & what the process looks like for renewing the license or permit. Failing to renew the license or permit will increase the liability for your LLC and potentially land you in some compliance-related issue. In some states, incorrect or expired licenses can result in fines or business foreclosures.
Annual Taxes
In order to keep your LLC in good standing with the IRS and your state, you should pay the taxes in full and on time. The business might not pay any income tax depending on how your LLC is taxed. For example, a sole proprietor with an LLC could use pass-through taxation to pay business income on its personal tax returns. But some states may require a minimum LLC tax every year. For example, an LLC in Delaware needs to pay a $300 annual tax whereas California’s minimum annual tax is $800. But the fee can increase depending on the LLC’s income for the particular year.
Annual LLC Meeting
Annual meetings are not officially needed for an LLC, unlike a corporation. But you need to follow whatever procedures laid down in your operating agreement. You should have these meetings if the operating agreement mentions them. Although the state won’t be checking on this, failure to abide by the operating agreement can cause your LLC to lose its liability protection – in case it is challenged in court by another member.
Go Vitru Tips For Maintaining Your LLC
Maintaining your LLC company isn’t complicated. The following best practices will make your life easier. In fact, you can sleep every night knowing that your LLC is in good standing.
1: Use a Registered Agent Service
Each state needs an LLC to maintain a registered agent. Although you can do it on your own, we strongly advise against that. The registered agent receives government correspondence and compliance-related issues on behalf of your company. When you use a registered service agent, you will benefit much more than the basics. The best service agent will help your LLC remain compliant and make sure all the paperwork is up to date with your state. They will handle the majority of paperwork on behalf of the company as well as pre-fill state forms. Some agents will remind you of upcoming annual reports, fees, or any other requirements. When you use a registered service agent, it will make everything easier to maintain your LLC.
2: Separate Business and Personal Expenses
Newly registered LLCs experience this problem. Even though the state doesn’t legally require you to open a business bank account for your LLC, you should open one as soon as you register your LLC. In fact, the idea of using one account for personal and business use is a big no-no in the eyes of the IRS – even if nothing is wrong in doing so. They will heavily scrutinize you when your accounts are audited in case you have one account for both.
On the other hand, you may lose the liability protection of the LLC when you mix business and personal accounts. Open a checking account as soon as possible to avoid this problem. Once you have a business name and an EIN, you can apply for an account with most banks.
3: Keep All Required Documentation in a Safe Place
Staying organized is important to maintaining your LLC. If your paperwork, permits, licenses, and documents are all over the place, proper maintenance becomes a challenge. Your main office should have copies of these documents:
- LLC operating agreement (and any amendments)
- LLC articles of organization (and any amendments)
- LLC meeting minutes (if required in the operating agreement)
- Copy of EIN confirmation letter
- Full list of each LLC member, with addresses, shares, and contributions
- All business licenses & permits
- All copies of financial statements & tax records
Keep the copies of documents in your office as well as online in cloud storage for safekeeping. Quick access to these documents will simplify when it comes to maintaining your LLC.
What to Do Next?
Now that you have an idea of what should be done to maintain your LLC, you should consider a few things. Go Vitru is your trusted partner when it comes to maintaining your LLC. We have put together a host of resources for business owners. Once you open a business checking account for your LLC, you should also apply for a separate credit card for the company. This will make it easier for you to separate your personal and business accounts. That way you can easily maintain your LLC and keep it in good standing with the state and the IRS.
As we have already stated in this post, the exact requirements for maintaining an LLC may depend on your specific state. You should always consult with a business lawyer when you have any questions, concerns, or need guidance on what exactly is required on your part. The aforementioned article provides information on how to maintain your LLC.