Mid-Year Corporate Wellness Check

As we are now past the midpoint of the year, it is a crucial time for businesses to perform a comprehensive legal compliance checkup. Maintaining compliance with various legal requirements not only helps avoid penalties but also ensures maximum liability protection for the business owners. For many this list may seem basic, but year after year these are the areas that we continue to see small business neglecting. Compliance in these areas is essential to maintain the veil of corporate liability protection and keep your business operating smoothly.

1. Statement of Information

• What It Is: The Statement of Information is an essential filing requirement for corporations, LLCs, and non-profits in California. It provides updated information to the State of California about the business's address, officers, directors, and agent for service of process.
• Filing Requirements:
  • Corporations: Must file the Statement of Information annually.
  • LLCs: Must file biennially.
  • Due Dates: The due date is based on the business’s registration anniversary date.
• Penalties for Non-Compliance: Failure to file on time can result in penalties and the suspension or forfeiture of the business entity. A business entity that is operating in forfeited status offers no legal protection to its owners.

2. Annual Meetings

• Importance: Annual meetings of shareholders and directors are a cornerstone of corporate governance, ensuring transparency, accountability, and compliance with corporate bylaws.
• Preparation:
  • Notice: Provide proper notice to all shareholders and directors as specified in the bylaws.
  • Agenda: Prepare an agenda that includes key topics such as the election of directors, approval of financial statements, and other significant business matters.
  • Minutes: Record detailed minutes of the meeting to document decisions and demonstrate compliance with corporate requirements.
• Virtual Meetings: If virtual meetings are utilized,ensure that they are conducted in accordance with legal requirements and bylaws.

3. Issuance of Stock

• Authorization: Ensure that the issuance of stock is properly authorized by the board of directors and is within the limits set by the articles of incorporation.
• Documentation:
  • Stock Certificates: Issue stock certificates or maintain electronic records for shares issued.
  • Stock Ledger: Update the stock ledger to reflect new issuances and transfers.
  • Securities Compliance: Comply with state and federal securities laws, including filing necessary forms and disclosures.
• Valuation: Properly value the stock to avoid potential tax and legal issues, particularly when issuing stock as compensation.

4. Maintaining Corporate Formalities

• Corporate Records: Keep detailed and accurate records of all corporate activities, including meeting minutes, resolutions, and financial statements.
• Bylaws and Operating Agreements: Regularly review and update corporate bylaws and operating agreements to ensure they reflect current practices and legal requirements.
• Board Resolutions: Document major business decisions with formal board resolutions to provide a clear record of actions taken by the board of directors.
• Separate Legal Entity: Maintain the corporation's separate legal entity status by ensuring personal and business finances are not commingled. Use corporate bank accounts for all business transactions.
• Compliance Calendar: Implement a compliance calendar to track key dates and deadlines for filings, meetings, and other corporate formalities.

5. Corporate Transparency Act (CTA)

• NEW: The CTA, effective January 1, 2024, requires certain businesses to report beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN). The goal is to combat money laundering, terrorism financing, and other illicit activities.
• Who Must Comply: Most corporations, LLCs, and other entities created by filing a document with a Secretary of State or similar office must comply, with some exceptions for larger companies and heavily regulated entities.
• Required Information: Businesses must report the name, date of birth, address, and an identification number of each beneficial owner and applicant.
• Deadlines:

• Penalties for Non-Compliance: Failure to comply with the reporting requirement may result in a civil fine of $500 a day for each day the violation continues (up to $10,000), up to two years imprisonment, or both.

A mid-year legal compliance checkup is an excellent opportunity to ensure your business is on track with its legal obligations. By focusing on these areas will help your business maintain compliance and position itself for continued success.

If you have any questions or need a corporate wellness check, please do not hesitate to contact our office.