It's the end of the year. It's an important time to take stock of your legal and tax considerations as a start-up. There are several important items you on which you should take action before you take off for the mountains. (Hey, who are we kidding? You're working in a start-up, and you'll probably be at your desk while everyone else is on "break.")
1. Check Your Corporate Compliance.
If your business is a corporation or an LLC, you must make sure to file your annual report (also known as a "Statement of Information") with your secretary of state to maintain corporate compliance. "Missing the deadline can subject you to penalties or even put your entity into bad standing," said Nellie Akalp, CEO of CorpNet, a legal document preparation service in Westlake Village, California. "If you've moved locations, changed your business name, changed your registered agent, authorized more shares for issuance, or changed management roles or directors and officers, you'll want to file articles of amendment before year end."
2. Make Sure Your Business Name is Really, Truly Yours.
Did you check for a competing mark or file a trademark when you started your business? It is an important step to protect your company and brand for the future. Next, did you file to reserve your business name with the secretary of state? "If you're not ready to legalize your business by incorporating or forming an LLC, but are planning to still start your business, you should definitely make sure your business' name is available via a free business name search," said Akalp. "Then, register your business as a Fictitious Business Name (also known as a DBA or "doing business as" filing) to make sure the name is registered to you."
3. Pay Every Last Cent You Owe in Taxes.
If you haven't paid all the taxes your business owes, "anyone in positions of responsibility, whether it is the business owner, or the signatory, may be personally liable for both the unpaid taxes, and the penalties associated with non-payment," said James Pratt, a California-based tax attorney who's part of Rocket Lawyer's on call network. "In some instances, the IRS can hold directors and officers personally liable, even if you have set up a corporation."
4. Make Sure You Are Classifying Employees Correctly.
Simply calling someone a consultant doesn't make him or her an official one. "While the law may be somewhat different state to state, for federal purposes, the general distinction between independent contractors and employees is the extent to which the employer exercises control over the work of the individual in question," said Rocket Lawyer founder and chairman Charley Moore. "For example, if someone performs services for you and you also control how and where the task will be done, they may be seen as an 'employee.' On the other hand, if they use their own materials, regulate their own work plan, and you cannot control all of the details of how the task will be done—only the end result—then these individuals are more likely to fit the definition of an independent contractor. Also, employees tend to stay with you past the completion of individual projects, while consultants work for specific periods on specific projects and then leave."
5. Consider Your Company's Legal Form Once Again.
If you're still acting as a sole proprietorship, January is a great time to incorporate. Pratt said "With a filing date of January 1, you'll save time when filing a tax return for that year, because the business doesn't need to file two separate tax returns for the unincorporated entity and one for the new C-Corp, S-Corp, or LLC." Akalp adds that CorpNet offers a "delayed filing" option. "Place your incorporation order now and the papers get walked into the state offices on the first day of business. Since it's the beginning of the year you'll get paperwork back quickly. This can save between 20 and 30 business days."
Both Rocket Lawyer and CorpNet offer help and support to small business owners in different forms. Whatever service or professional you work with, it is a good time to check with them before the end of the year. And, remember, do take a few minutes off to sit back and reflect on this crazy year, and to congratulate yourself on a job well done.