Starting a limited liability company (LLC) takes a lot of work. Before you serve your first customer or fulfill your first order, it is important to complete the initial business formation process.

Although starting a business is a significant achievement, small business owners must keep your business in good standing with the state. Not maintaining the legal status of your LLC can have serious consequences. You could owe fines, be unable to expand your business, and even face involuntary dissolution.

Fortunately, this can all be avoided by maintaining strong internal processes. If you are unsure what is required to maintain your LLC's status, schedule a meeting with me and we can discuss it.

The Consequences of Losing LLC Status

An LLC is a legal entity that exists independently of its owners. This structure protects LLC owners (called members) from the LLC's debts and the inevitable lawsuits, and it also provides taxation flexibility; these benefits are not available with sole proprietorships and partnerships.

However, these benefits come with a tradeoff: forming an LLC is more complex and more expensive than starting a sole proprietorship or a partnership. Not only must you file detailed formation documents with the Division of Corporations (SunBiz), you also must provide them with information on an ongoing basis to maintain good standing.

Failure to comply with the state statute can cause you to lose good standing. Losing good standing can result in the following consequences:

• The state will not issue the LLC a certificate of good standing, which may be required to open a business bank account, set up customer payment processing, apply for a business line of credit, expand into other states, or file and maintain lawsuits on behalf of the business.
• The entity could lose the right to use its business name in the state.
• The state may impose fines and penalties on the LLC and its members.
• The business's home state can dissolve the LLC.
• Other states can revoke the LLC's qualifications to conduct business there.

Technically, once you are issued a certificate of good standing, it is valid until the expiration date. But if you lose good standing, the state typically will not issue a new certificate when the current one expires.

You may have a short time to remedy any issue that results in a loss of good standing. While recovering good standing may simply be a matter of sending a check or filing a document, it is best to avoid problems in the first place to prevent interruptions in your business's good standing.

Remaining in Good Standing

Being denied good standing, even for a few days or weeks, can devastate your business. If you are not careful to maintain your LLC's standing, you might only learn at the last minute—when you go to apply for a loan or register to conduct business in another state—that your status has lapsed.

You may be able to recover good standing with a quick fix, but any compliance red flag sends a bad message to potential business partners. And not all fixes are quick. Losing good standing for an extended period could jeopardize your LLC—and your livelihood.

Maintaining your LLC's status is not difficult, but it requires attention to detail and can be time-consuming. In most states, taking the following steps will keep you in good standing:

• Amend the articles of organization if there is a qualifying event, such as a business name change, a change in the name or address of the registered agent, or a change in the LLC's financial, taxation, or management structure.
• File an annual report with Sunbiz in accordance with state LLC laws. Generally, you must provide information about the LLC's registered agent, its current business address, the names and addresses of members and managers, and an updated description of business activities. Check the due date and where to file. Expect to pay a filing fee with the report. In Florida this can easily be done on-line.
• File state and federal taxes when they are due. LLC members are often treated as self-employed individuals, and thus must pay quarterly estimated taxes. Tax deadlines vary depending on whether an LLC is filing as a sole proprietorship, partnership, S corporation, or C corporation.

Renew business licenses and permits, such as health permits, occupational licenses, liquor licenses, building permits, and zoning and land use permits. Many of these need to be renewed annually. In addition to state licensing laws, cities and counties may have separate registration rules.

• Resolve any criminal activity charges against the business or one of its owners. Criminal activity could lead to loss of good standing.

Losing your good standing could come down to a simple error like a mistake in a filed form, missing information, or paying a noncurrent filing fee.

You Earned Your Good Standing. Do Not Let It Slip Away.

There is an entrepreneurial saying that you should work on your business,not in your business.It captures the idea of taking a big-picture view and not getting bogged down in minutiae. Spending too much time on tasks that can be delegated robs you of the energy needed to plan, build, and strategize.

Compliance failure is not a mistake your LLC can afford to make. Maintaining good standing demands constant attention, cross-department coordination, and a proactive strategy. To stay on top of your LLC status obligations, consider meeting regularly with an experienced business attorney, especially if your LLC has a more complex structure and operates in multiple states.