Conduct a year-end review of your business

October is Fire Prevention Month which generates a lot of public service announcements to change the batteries in your smoke detectors to prevent fire emergencies. October is also Breast Cancer Awareness and February is American Heart Month with reminders to get check-ups and to take better care of health. There are a lot of articles and news segments when it is tax time to tell you what all you need to prepare your taxes and make possible changes to reduce your taxes in the coming year. Very little is written on what you, the small business owner, should do to make sure your business remains is compliant with legal issues such as filing your annual reports with your Kentucky Secretary of State. Do you have contracts that might need updating to meet current laws. Have you reviewed contracts you have with suppliers that are going to expire. How about your lease? Do you need to give your landlord notice that you want to exercise your options. Let me share various items that a small business owner should review to make sure their business remains in good working order.

Kentucky requires two things each year for every corporation and limited liability company doing business in the state. Both are relatively simple and both will cost you if you don’t file them on time.

First, every such entity must file an annual tax return and must pay a “franchise tax.” You must pay the franchise tax whether your entity makes money or not and even if it is not being used to operate or own and active business at the time. The franchise tax is the fee the state charges for the privilege of maintaining a corporation or limited liability entity in the state. The failure to file and pay this tax will result in penalties and interest.

Secondly, every such entity must file an annual report with the Secretary of State, providing current information about the entity. These must be filed by July 1 and the filing fee is $15. Filing after July 1 will result in an increased fee. Not filing by September 1 will result in the entity being administratively dissolved by the Secretary of State. In other words, it ceases to exist and so does the liability shield for owners that the entity provides. While the business can be reinstated it is an involved process that requires getting clearances from the Kentucky Revenue Cabinet indicating that all returns have been filed and taxes paid. In addition, there is a $100 reinstatement fee.

Each year a card is mailed to the entity, reminding it of the need to file and providing simple ways to do so (including on line). Act as soon as you get this card but don’t rely solely upon being reminded by the Secretary of State’s office. Things happen. Most often people get it but think it is junk mail and they ignore it or the office address changes and the Secretary of State has not been notified of the change. It is best to put a reminder on your calendar for May 1 that the annual report is due.