In my previous post I discussed protecting your personal liability when you form a corporate entity (corporation or limited liability company). I mentioned corporate formalities.  Below are more practical steps you should take to follow corporate formalities:

  1. It is extremely important that you keep company funds separate from your personal funds.  Company revenues and company expenses should be deposited to, and paid from, the Company checking account.  You should NEVER buy groceries or shop at Target for personal items out of your business account.  At a minimum transfer funds between the accounts and make sure to note the transfer as a draw.
  2. When there is extra money available from the company’s profits, you can take it out in the form of a draw, i.e., a check from the company’s account to you personally, with the word “draw” or “distribution” written on the memo line.
  3. From a legal perspective, you want to have all checks, letterhead, envelopes, business cards, etc., state the full name of your company.  You always want to put everyone on notice of the limited liability status.
  4. On a yearly basis, you must file an Annual Registration Form with the Secretary of State.  You may obtain a copy of the form from the Secretary of State’s website, or you may now file your annual registration on line at  Be sure that you or your accountant completes this form, and return it to the Secretary of State’s Office. Filing your annual registration on-line is a very simple process.  If you do not file the Annual Registration Form, your company will be administratively terminated.  If your address changes, you should also file a Change of Address Form (“Change of Registered Address”), with the Secretary of State’s Office, to make sure you receive any correspondence they send you.
  5. It is very important you prepare minutes for every major decision the company makes:  major expenditures, major purchases, salaries, loans to and from the company, loans to and from financial institutions, and the like.
  6. You should prepare a written resolution whenever you enter into any significant transaction (such as taking out a business loan or making a large purchase, etc.).  You should also prepare a resolution reappointing any officers or managers, and approving and ratifying the results of the previous year’s operations on an annual basis.
  7. A person’s employment status has implications related to many areas of law including taxation, pensions, workers compensation, unemployment, discrimination and wage and hour laws.  The penalties can be very severe if you try to establish someone as an independent contractor and it is later determined that he or she is an employee. If you plan on hiring employees or independent contractors you should speak to an attorney.
  8. It may or may not be necessary to obtain a federal and/or state tax identification number.  You should speak with your accountant to determine if it is necessary for your entity.