8 Business Compliance Considerations for 2021by
To avoid penalties and other headaches, one of your business clients' many responsibilities is to remain in good standing with the state they operate in. But why is this so important, and what do they need to think about for 2021? Nellie Akalp lists 8 points you should bring up in your next meeting with a business-owning client.
It’s hard to believe that 2020 has come to a close. With the end of a decade upon us, it’s time for your business clients to assess their business compliance situation for 2021. In this article, I’ll cover some of the critical considerations that will help your clients stay in good standing with the state.
Why is keeping compliant and maintaining the status of “good standing” so important? Well, for one, it means a company can lawfully conduct business in the state and retain the right to bring legal suits in the state. Also, non-compliance can result in a court of law determining that the company’s corporate veil has been pierced—thus voiding the personal liability protection that business owners get by operating as an LLC or corporation. Falling out of good standing even may cause a business to be suspended or administratively dissolved.
Those are pretty high stakes, so clients should be aware of and fulfill their business compliance requirements. Consulting you and legal professionals for information and guidance can help them understand their obligations.
2021 Checklist of Business Compliance Considerations
1. Submit their annual report.
Most states require LLCs and corporations to submit an annual report every year or every other year. Some states require it on some different timeline (such as Pennsylvania's decennial filings). It's critical that your business clients research when their report filing is due.
The due date for annual reports varies according to the state. It might be:
- The anniversary of a company’s incorporation date
- The date that the company’s annual tax statements are due
- The end of the calendar year
Clients that file their annual report late could face fines, penalties, and late fees. Of course, better late than never. However, filing on time is the ideal way to go.
2. Plan to hold their annual LLC member meeting or shareholder meeting.
If required, your clients should schedule their LLC’s or corporation’s annual meeting. They should also make sure someone at the meeting will take minutes to document what took place and what was discussed. Minutes must be approved (by the members of an LLC or a corporation’s board of directors—or according to other rules set forth in the LLC’s operating agreement or corporation’s bylaws).
3. Renew their business licenses and permits.
Businesses that need licenses and/or permits to operate legally may need to renew them. Your clients should contact their municipality, county, and state offices to find out if any of their licenses or permits expire and when. If they don't have the time to track all of that down on their own, they might consider enlisting the help of a legal filing service to identify the requirements (at the federal, state, and local levels) and file the renewal applications on their behalf.
4. Get their accounting records in good order.
It's never too early in the year for your clients to begin organizing all of the paperwork they'll need for filing their tax returns. Having all of their records in order will alleviate stress for them—and you!
5. Prepare to send 1099s to any independent contractors they worked with last year.
Starting with Tax Year 2020, the IRS has made a change in which form must be used for reporting payments to independent contractors (nonemployees) who provided their services to a business. Per the IRS website, “If you paid someone who is not your employee, such as a subcontractor, attorney or accountant $600 or more for services provided during the year, a Form 1099-NEC needs to be completed, and a copy of 1099-NEC must be provided to the independent contractor by January 31 of the year following payment. You must also send a copy of this form to the IRS by January 31.”
Clients may be either be unaware or confused by this switch, so they will surely look to you for guidance.
6. Review their current business entity type to determine if it’s time for a change.
You can help your clients figure out if their entity type is providing them the most favorable tax situation, and an attorney should help them look at it from a legal standpoint. Sole proprietorships and partnerships may especially want to discuss establishing a formal entity if they want to grow their businesses, protect their personal assets, and reduce their self-employment tax burden. Entrepreneurs that want to form an LLC or corporation must file paperwork with the state to register their entity. After you and their attorney have steered them toward the best business structure for their situation, they can prepare and submit their business formation paperwork on their own. Or they can ask a knowledgeable third-party—such as an attorney, an online filing service, or you (if you’re a partner with an online filing service) to handle it for them.
7. Determine what they must do if they want to expand operations into other states.
Have any business clients thought about setting up offices, stores, or sales employees in other states? Then they will want to research what needs to be done to foreign qualify their company in those states. Each state’s Secretary of State website provides information, and your clients should consult you and an attorney to determine the legal and tax implications.
8. Report important changes to the state(s) where their business is registered.
If your clients have an LLC or corporation, they must officially notify the state if they make any key changes to their company. In most states, the paperwork involved is called “Articles of Amendment.” The Articles of Amendment document formalizes any changes in the company’s previously filed Articles of Organization (LLC) or Articles of Incorporation (corporation). Examples of changes that the state will want to be notified about include:
- A change to the business’s address
- A change to the company’s name
- Changes to the board of directors
- A change to a company’s business purpose
If your clients make other significant changes but are unsure if they need to inform the state, they should check with their state’s Secretary of State office.
Planning Ahead: The Best Way to Ensure a Happy (and Compliant) New Year
Preparation is the key to staying on top of business compliance responsibilities. Encourage your clients to take stock of their obligations now so that they keep on-schedule with their upcoming reports and filings in 2021.