As a small business owner heading into the end of the year, now is an excellent time to review your Company’s legal, financial, and regulatory structure to ensure that it remains in good standing with the State of California. It is also vital that your Company observe corporate formalities so that your business continues to enjoy the limited liability protections of the corporate veil. That means filing all necessary information to the State, holding annual meetings, and maintaining records of annual recordkeeping of material changes to a business or its management structure.
Additional areas of concern include new reporting changes for payment platforms such as Paypal and Venmo, Americans with Disabilities Act (“ADA”) accessibility requirements, and HR compliance.
In this article, let’s review some important areas to review:
1. Hold Annual Meeting
California corporations are required to hold an annual meeting of the board of directors. However, a company can also choose to waive the annual meeting with the unanimous written consent of all directors. If you have not already done so, the last few months of the year are an excellent time to hold your annual meetings.
2. Prepare Annual reports
If your Company bylaws require that you prepare an Annual Financial report to shareholders, you should begin preparing the report unless all shareholders waive that requirement.
3. Prepare company books and schedule a time to review them with your CPA or accountant.
In 2022, payment platforms such as Paypal and Venmo will be required to provide a form 1099-K form to customers who transact in $600 or more in business or services and file such form with the IRS. Presumably, your business is accurately reporting its income and expense. However, it is vital to be aware of these new accounting requirements and an additional document to provide to your accountant.
Now is a good time of year to consult with your Company’s accountant or CPA. Most accounting firms will enter their busy season in Q1 through Q2. Therefore, now is a good time to meet with them before busy season begins. You can prepare for tax returns, 1099 and W-2 forms, deductions, and asset purchases.
4. Review past due to accounts payable and receivable
With the year’s end, you should reconcile accounts receivable and accounts payable to have an accurate picture of the Company’s income and expenses.
5. Review Company contracts
Now is a good time to make sure that all company contracts in effect have accurate information for notices, addresses, the scope of services, termination, or automatic renewal. Vendors may have offered you promotional rates for services that have now expired. You may be able to renegotiate those back to a lower or more competitive rate. In some cases, contracts may auto-renew unless timely notification of an intent to terminate is given.
6. Performance review and year-end bonuses
If you have employees, now is a good time to meet with them for periodic performance review. You should document and collaborate with your employees on how to improve performance and avoid suboptimal work-product. You should listen to an employee’s concerns over work conditions and the scope of their duties under their job description. You may decide to award year-end bonuses for improving morale, to recognize and reward your hard-working employees.
7. Prepare Statement of Information
California requires corporations to file a statement of information annually; this document will reflect any changes you make to the Company. This includes changes to the company name, the number of authorized shares outstanding, changes in officers and directors of a company, change of principal address or registered agent address.
A California Limited Liability Company is required to file a statement of information every other year. Importantly the LLC should update the state updating its managing members and ownership, usually by providing an addendum identifying each member and their percentage ownership in the Company.
If you intend to close your business, it is not enough to simply “walk away.” You should try to wind down your business by accounting for its assets and make sure to close any loose ends with creditors or debtors of your business. For example, suppose the Company’s debts are significant and it lacks funds to meet those debts. In that case, the Company should consider Bankruptcy protections. Dissolving the Company could potentially subject ownership to alter ego liability, especially if the business makes fraudulent transfers of its assets to hide those assets from creditors.
8. Renew or verify business license and fictitious business name registrations.
Most California cities require a business to obtain a business license before operating or soon after opening to the public. These licenses are usually a few hundred dollars. However, if a business does not obtain such a license, it risks being closed by the city. In addition, if you have specific permits from the ABC, health code regulations, or plan to sell goods to the public, a seller’s permit may be required. You should check to make sure these licenses are all in order.
9. Review the employee handbook and test whether your “independent contractors” qualify as contractors and are not misclassified as employees.
Where a business utilizes the services of employees and independent contractors, California law requires that you accurately classify your workers as employees or contractors. Under the “ABC Test” Courts may ultimately determine whether your independent contractors truly qualify as such or whether they are, in fact, employees subject to California labor code, safety precautions, labor standards, taxes, and benefits.
California Labor Code § 2775 codifies the Supreme Court decision from 2018 called Dynamex. [Dynamex Operations West, Inc. v. Superior Court, (2018) 4 Cal.5th 903] Dynamex established the “ABC test”. Under this 3-prong test, an employer who hires an independent contractor must demonstrate that the worker is: (A) free from the Company’s control; (B) performs work outside the Company’s usual course of business; and (C) is customarily engaged in an independently established trade, occupation, or business.
California employers need to make sure all workers are properly classified or risk civil liability for wage & hour litigation, self-employment taxes and missed benefits from employees misclassified as putative independent contractors.
If you have employees, you should review your employment agreements, ensure accurate job descriptions and performance criteria. It is a good idea to have a handbook of how your company operates and what procedures to follow. You also want to make sure that you are providing a safe, non-discriminatory, and appropriate work environment. Written regulations are an important factor in an employer’s obligations to ensure that workers who put the Company at risk can be reprimanded correct or terminated as warranted by the circumstances.
10. Accessibility and Privacy regulations
Your business should consider conducting an Americans with Disabilities Act (“ADA”) compliance audit to make sure that it is handicap accessible. California has adopted the ADA through the Unruh Act. Businesses that want to demonstrate their accessibility to all members of the public may do so by obtaining CASp certification with the State of California. This will help avoid potential liability involved with failing to meet ADA standards and being sued under the Unruh act. If your business maintains a website, it must also be ADA compliant as measured under Web Content Accessibility Guidelines (WCAG). Fortunately, you can scan your website through several companies using AI to recognize where the website is not ADA-compliant. But, again, the risk of not maintaining an accessible website is a potential liability in a civil suit for violations of the ADA and the Unruh Act.
We hope that this checklist has been informative. If you have any additional questions, please Call GALLAGHER KRICH APC at (858) 926-5797 to discuss any questions you have about any of the above. Our lawyers can help you prepare a strategy for your small business.