Failing to pay attention to formalities can create tension among owners and shareholders (assuming a multi-owner business), cause challenges if you want to sell the business when the buyer gets into due diligence, delay or even deter new investors from putting in capital, and possibly create liability for owners as to third parties. Observing corporate formalities is important, even for one-person entities (sole stockholder corporations or sole member LLCs). LLCs don’t fit every startup’s profile and needs, although for relatively small, lifestyle-type businesses, they can be perfect, partly because they can be formed in a way that minimizes the required ongoing maintenance and administration, making the meeting and record-keeping requirements much more relaxed compared to corporations. This is true in Texas, Delaware, California, Florida, and every other state I’ve seen, and it is one reason why business attorneys suggest limited liability companies as the right fit for some startups, especially businesses that aren’t intending to grow into large businesses. Generally speaking, corporations require greater attention – more meetings or actions by written consent (an action by written consent is a fancy term for decisions taken in writing via resolutions rather than in an actual meeting) compared to limited liability companies and partnerships. The requirements for corporate governance vary from entity type to entity type and from state to state (BTW, it’s common to use the term “corporate governance” even when referring to an entity other than a corporation, e.g., an LLC, public benefit corporation, limited partnership, etc.) Even more mundane than some aspects of operations are matters involving corporate governance.Ĭorporate governance is the term for maintaining and operating your business in a manner that complies with legal obligations, including obtaining the appropriate votes and documenting meetings and decisions of the governing bodies (e.g., shareholders and directors for corporations, members and managers for LLCs, partners (general and limited) for the various types of partnerships). What is Corporate Governance?įorming a business is an exciting time for any entrepreneur, although the actual day to day operations of a business can be confusing and often a whole lot less exciting. If you are still trying to decide what type of entity to form, the information in this article may be helpful, although the following article will give you a quick, more tailored overview for deciding between an LLC and a corporation read 4 Things to Know When Deciding Between an LLC or Corporation. We will also explore some best practices for managing and governing your new entity to get the most out of it and to avoid risks of the entity not providing you the legal protection you expect it to provide. Along the way, we will touch on other alternative entities, such as partnerships – general, limited, and others. and Texas because it’s so darn large, growing, and business favorable). In this article, we’ll look at annual compliance and filing requirements for limited liability companies (LLCs) and corporations in both Texas and Delaware (two states where I’m licensed as a business lawyer and two states where a lot of entities are formed – Delaware because it’s the hub of corporate law in the U.S. Most LLC Operating Agreements say something like, “The Manager shall prepare, or cause to be prepared federal, state, and local tax filings, as well as apply for all required licenses and permits …” If you need to know when those filings are due or what those licenses are (FYI, in Texas many industries are licensed through the Texas Department of Licensing and Regulation (TDLR)), you’re on your own, which is likely why you found your way to this article. Your founder/governance documents will rarely get into the weeds on specific compliance requirements and annual filings.
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