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What Are the Ongoing Legal Obligations of a Corporation?

Incorporation has its advantages, particularly the protection from personal liability, but these should not be taken for granted. Once a business is incorporated, the directors must ensure that it retains its legal status. You must keep detailed financial records and ensure that tax returns are filed fully and on time, for starters. A business that fails to perform these legal duties risks losing its corporate status (and the protections of incorporation). A corporation that is delinquent on its taxes or otherwise out of compliance, for instance, may not be able to file a civil lawsuit or secure capital until it resolves these issues.

Depending on the business form and the regulations of the state, certain legal formalities must be followed in order to maintain the legal status of a corporation. Once incorporated, a business's ongoing obligations include the following:

1. Taxes

Obtain federal and state tax identification numbers for the business, and file necessary tax returns annually. Make sure you understand the tax differences between C and S corporations, and check with your state's tax code.

2. Securities

Issue shares of stock as mandated by the articles of incorporation and securities laws. See Shareholders, Dividends, and Taxes, as well as FindLaw's Securities Law section, for more information.

3. Bookkeeping

Establish and maintain corporate books and records, including accounting ledgers, shareholder records, and corporate minute books.  

4. First Board Meeting

You will need to call and conduct an initial meeting of the board of directors or shareholders as required in the articles of incorporation. This will help set the tone and establish the direction of the new corporation.

5. Successive Board Meetings

Hold future meetings at least as often as required by applicable business laws.  

6. Following the Articles of Incorporation

Conform all decisions and internal procedures to the outline set forth by the articles of incorporation.  

7. Meeting Minutes

Recording all actions and decisions of the board of directors in the corporate minute book. Minutes typically include the names of the board members and anyone else present at the meeting, with a record of reports by the officers, actions taken, etc.

8. Registration with the State

Maintain your annual registration with the state government, as required by law.

9. Licensing and Professional Standards

Additionally, some businesses must comply with licensing requirements or professional standards to preserve their status. These businesses may need to maintain further records or use special procedures or equipment based on rules for their specific industries.

Failure to Follow Legal Procedures of a Corporation

In many situations, a failure to honor these and other corporate obligations can result in personal liability for directors, officers, or shareholders for business obligations and debts. Because of these harsh consequences and because the specific legal requirements vary depending on the business's location and form, businesses should seek professional legal assistance. In many states, this suspension or revocation of corporate status is referred to as a "loss of good standing."

Generally speaking, a company that fails to follow the legal corporate procedures may face the following consequences:

  • Personal liability for the acts of the company
  • Inability to file a civil lawsuit
  • Tax liens (nonpayment of tax obligations)
  • Difficulty securing capital investments or loans
  • Fines and other penalties

Get Help Complying with Your Corporation's Legal Requirements

Organizing your business as a corporation provides many advantages over other legal structures, mainly having to do with taxes and protection from personal liability. But once you incorporate, it's important that you follow certain procedures in order to maintain these protections. Corporate officers are busy running their business, so it makes sense to hire a business organizations attorney when identifying and complying with the legal procedures of a corporation.

See FindLaw's Incorporation and Legal Structures section for additional articles and resources.

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