Hi, I’m Cliff Ennico legal editor for SBTV.com. So you’ve been in business for a while as an LLC or a corporation or some other kind of legal entity and you’ve been in business for a while and nothing really bad has happened, you haven’t gotten any nasty notices from the government or anything like that. Can you still be a 100% sure that your business is legal. Believe it or not it may not be even though things have been going well for years and nothing bad has happened.
Here at two situations I encountered recently were people who thought they had legal businesses really didn’t. Situation number one, two guys decide they’re going to start up a company, they call up a local attorney, the local attorney prepares LLC papers, sets the amount, they sign everything but then they forget to send it back to the attorney. They think that they’ve done everything possible. So they start going on in business and let’s say they got a retail business, whatever, they’re running a store for several years and they’re paying all their taxes. All of a sudden they have to sue somebody, somebody is cheating them or not paying their bills or what not, they go to their local court and try to sue and the court comes back and says we can’t let you sue because you’re not a legal business in this state, you never filed your LLC paperwork.
Whenever you form an LLC or a corporation in just about every state that I’m aware of, there are certain paperwork you must file with the secretary of state’s office in your state capital. If that paperwork is not filed, you do not have an LLC or a corporation even though you signed everything that the sttorney sent you.
In this situation these two guys even though they’ve been paying taxes as an LLC for empty years would be treated as a partnership which is not a good thing. When in your partnership with someone you are not only liable for your mistakes, you’re liable for all their mistakes as well. So if you and I are 50/50 partners and I do something absolutely horrible that causes us to get sued, not only do I loose my house, you loose yours as well.
The whole reason for performing an LLC is to prevent that from happening and these guys did not get that the benefit of the LLC because they fail to file that one bill piece of paper. By the way in that case too shame on the attorney for not following up and saying, “Hey, I sent you guys this paper works six months ago and I haven’t heard from you what’s going on?”
At some point I think the Attorney has to follow up too and make sure that his clients are doing the right thing. But that’s still no excuse in a situation like that, I mean, it was these guys fall for not asking the attorney, “Okay, we’ve signed everything, now what else do we have to do?” So that’s one situation, always make sure when you form an LLC or corporation that you file that necessary paperwork with your state secretary of states office.
Here’s the other situation that’s very, very common. Let’s say that you formed Delaware corporation years ago and you had a reason to operate in Delaware or in Nevada. That’s another jurisdiction and a lot of people like to form corporations in. You were living in Illinois at that time but several years ago you moved to Connecticut. In that situation whenever you have Delaware or a Nevada corporation and you move from one state to another, you have to file paperwork with the secretary of states office in the new state. Failed to do that and you can be subjected to some extremely harsh penalties. In the state of Connecticut, if you have a Delaware corporation that is not legally registered in Connecticut, you have to pay a fine to the state Attorney generals office that could be as much as $2,000.00 for each year that you’re delinquent. And there is negotiating with the AG’s office if they come after you, you absolutely have to pay this. This is true by the way even though you’ve been paying your taxes in Connecticut for the last several years and you don’t owe the state a penny of money in revenue in terms of taxes.
Every state has a rule that says that if you do if you’re a foreign corporation and say a Delaware corporation or a Nevada corporation need you are not properly registered in the state, you have to pay some hefty fines to get back into the states good graces.
So there’s two situations where even though you form the corporation and things are going smoothly you’re still not getting the full legal protection that that corporation or LLC is offering. So how do you avoid this problems, rule number one always make sure to have an Attorney or an accountant help you form a corporation or you’ve earned LLC. Do not use one of the many Do it Yourself incorporation sites on the web. Some of them are pretty good. I don’t knock them all, some of them are pretty good but they don’t always tell you every step that you have to do. Always use an Attorney or an accountant to form your corporation that way you know it will be done right and also if it’s not done right you have someone that you can sue for malpractice. In every state that I know of, you can’t sue yourself from malpractice if you make a mistake or fell something up. But if a professional does it for you and they make a mistake you can definitely sue them.
Secondly, whenever you have a corporation or LLC and you move from one state to another make sure to hire an accountant or a lawyer in the new state to make sure that all the paperwork that the new state requires is properly filed. Don’t just assume that your corporation will travel with you whenever you do. I’m Cliff Ennico for SBTV.com
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