You have formed your Florida corporation and you are starting to get business growth underway. The administrative work does not end when all of the initial paperwork has been submitted and bylaws drafted.
“The officers, directors, and shareholders of a corporation are not required to know everything about corporations law, but they are expected to take steps necessary to maintain the corporation’s legal existence and good standing.”Business Attorney, Trevor Brewer
What Is Corporate Maintenance?
Corporate maintenance is the act of ensuring that a corporation hosts all necessary meetings, submits the proper notices, annual reports, and more to stay compliant with state regulations. There are consequences for not keeping up with the responsibilities of a Florida corporation.
Why Is Corporate Maintenance Important?
Having to submit additional paperwork and hold ongoing meetings may seem trivial to your business, but it is important. Officers, directors, and shareholders may face a greater Shareholders incur a significant risk of liability when corporate maintenance is not upheld.
Though corporate maintenance is mandatory, that is not the only reason to hold shareholder meetings and record all pertinent information.
For instance, Sshareholder meetings are an ideal time to discuss the business and make changes. Any changes to shareholders, dividends, finances, or anything else that a shareholder may want to revisit should be documented.
There are multiple issues that could arise if you fail to remain compliant with corporate responsibilities.
Issues with the Internal Revenue Service (IRS)
As an example, corporate maintenance is important for confirming to the IRS that the corporation is a legitimate business entity, separate from its shareholders.
When the IRS performs an audit, they are looking for indications that the corporation is a real company. Indicators include corporate records, minutes of meetings, and compliance with state regulations.
Without these documents, the IRS can legally find that the company does not count as a corporation. If so, there can be significant tax ramifications.
One of the biggest tax changes can be that shareholders can now be held personally liable for taxes owed by the company. Instead of capital gains tax, shareholders may have to pay much higher personal income tax rates. The IRS also has the power to garnish accounts, seize assets, and place tax liens on items like homes and cars.
Dissolution of the Corporation
There are a lot of benefits to incorporation. The state of Florida determines how a corporation formed in the state will act. There are a number of requirements to becoming a corporation and maintaining status as a corporation.
The state has the right to administratively dissolve a corporation that fails to file its Annual Reportrevoke a corporate charter for lack of compliance.
If the corporation is administratively dissolved state revokes your charter, it will lack good standing to continue the operation of its business it will be as if the corporation never existed and all shareholders become individually liable for business debts.
Buyer and Merger Concerns
Any serious buyer or potential merger will want to see all of your corporate records to understand the details of the business and make sure everything adds up. If you are unable to produce records of annual reports, meeting minutes, shareholder correspondence, and other documents, it does not look good for your business.
Anyone who considers purchasing your debts and assets will want to have a clear understanding of your business and what they are getting into. Lack of corporate maintenance may give the buyer bargaining power to offer a lower price or decline purchasing your business altogether.
Piercing the Corporate Veil
Much like what can happen with the IRS, failure to meet all corporate requirements could cause a court to decide that you are not an actual corporation. If a judge comes to the conclusion that you may be trying to hide assets from creditors using the corporation, they can allow piercing of the corporate veil.
This means that shareholders no longer have the legal protections that kept them from being sued individually for actions of the corporation.
How to Stay in Good Standing
A corporation that complies with all government requirements for corporate maintenance is in “good standing.” A certificate of good standing can be obtained from the state. This document serves as legal proof that your corporation is properly registered in Florida and authorized to conduct business.
To remain in good standing, a corporation must continue to provide ongoing documentation according to Florida law. Some of the things required to stay in good standing include:
- Annual reports;
- Regular shareholder meetings;
- Minutes of all meetings;
- Notices of change to shareholders, registered agent, name, or official address;
- Financial statements; and
- Any amendments to the bylaws.
The most difficult aspect of corporate maintenance is often remembering everything that needs to be done. Many corporations opt to hire an attorney to be responsible for corporate maintenance and compliance.
Benefits of Hiring an Attorney for Corporate Maintenance Services
Your focus is on running your business. So it is very easy to lose track of the administrative work required to remain in good standing. An experienced Florida corporate attorney will understand the responsibilities of your corporation and establish a regular cadence of compliance and corporate maintenance services.
Corporate shareholder meetings should be held at least once a year. Arranging the meeting using the proper protocol can be daunting. According to Florida Statute 607.0705(1) on corporate business meetings, notice about the meeting must be sent no more than 60 days in advance of the date, and no fewer than 10 days. The same applies to special meetings.
Recording Minutes and Storing Documents
Holding a shareholder meeting is only part of the battle. To be fully compliant, the minutes of the meeting must be recorded. Minutes do not have to be submitted, but must be available upon request by shareholders or the state. Having an attorney present to record minutes and ensure that they are properly filed can prevent future complications.
A corporate attorney can help ensure the timely filing of mandatory documents. An annual report contains the most updated information on shareholders and other changes that could occur from year to year.
Every Florida corporation or LLC has the same deadline (generally in May). Late submissions incur a $400 fee. The report must be submitted by the third Friday in September to avoid administrative dissolution.
From time to time, you may find that you have questions about corporate compliance regarding things like buying or selling shares, management structure, conflicts of interests, and more.
An experienced corporate attorney who knows the details of your business is best suited to answer your legal questions and guide you through legal proceedings, should they arise.
Need to Hire a Florida Business Attorney for Corporate Compliance?
BrewerLong Business Law specializes in business law for small to medium-sized Florida businesses. The experienced attorneys at BrewerLong understand the complexities of Florida business law.
Our team is dedicated to fostering business growth from initial formation to mergers, transfers, changes, sales or dissolution, and everything in between. Contact us to schedule your consultation.
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