If you run your business as an entity (an LLC, a C Corporation, or a Sub Chapter S Corporation), you must abide by certain federal and state regulations. In fact, the type of business entity you operate dictates the types of documents you must keep, the fees you must pay, and the taxes for which you are liable. Therefore, if you are working to grow a best-in-class business, then you must do everything possible to stay compliant with state and federal regulations. Doing so will protect your business entity and protect you in case of litigation.
Part of growing value within your business comes back to risk management, the legal component of the 8 Foundational Components that Drive Up Your Business’s Intrinsic Value. Building value is one thing, but protecting the value you’ve built is another.
Hands down, the absolute BEST way to protect your business is to hire a great business attorney. A sharp attorney will make sure that your business complies with the laws which govern your particular jurisdiction. Additionally, good attorneys will make sure your documents are up-to-date and your agreements are correctly enforced.
Thankfully, your attorney will help you with the next step to protect your business entity. You must create and enforce an operating agreement that tells people how the company should be operated. Identify members, shareholders, or officers. Include an arbitration clause so that you know how to handle conflict within the company. Outline compensation plans, and include non-compete and non-solicit agreements. Then, have your attorney review the documents regularly to make sure they remain compliant with state rules and regulations.
Another thing you want to do is make sure all your entity fees have been paid to the jurisdiction in which you are registered or domiciled. For instance, in Tennessee, business owners must pay an annual filing report fee based on their entity status. The report publicly records the ownership details of your company. Therefore, if you fail to pay, your company could face state-mandated dissolution. If you are not sure what types of operating fees your company owes to the state or when the fees are due, check with your attorney or with your CPA.
Finally, I cannot say this last point enough… Do NOT… I repeat… Do NOT co-mingle your personal expenses with your business expenses. Your company is not your personal checking account. By keeping your personal and business income and expenses separate, you keep that “corporate veil” of protection in place. You’ve chosen to operate your company as an entity rather than as a sole proprietor, so keep your personal accounts separate.
If you choose to operate your business as an entity, do everything you can do protect the entity you’ve created. Rely on a stellar attorney to protect your interests, and do your own due diligence. Prepare operating agreements, and keep them compliant with state laws. Then, pay your state fees. And whatever else you do, do NOT co-mingle your personal and business expenses.
I realize that owning a business is hard. I know that. It’s hard, and it’s frustrating. But following these four steps can protect your business interests. Don’t try to find short cuts. If you do things the right way – the compliant way- you should sleep better at night.