Tamara Kling, Government Relations and Regional Attorney at CT, talks about corporations and Limited Liability Companies, including which to choose and how they are established. Learn how to get started, what to do to stay compliant, and how entity changes are processed. 

Greg Corombos: Hi, I’m Greg Corombos. Our guest this week is Tamara Kling. She is a Government Relations and Regional Attorney for CT Corporation. She joins us to today to discuss the lifecycle of a business entity. Tamara, thanks so much for being with us.

Tamara Kling: You’re welcome.

GC: Let’s start with entity types. What options are out there, and how do you determine what’s right for you.

TK: There are a variety of entity types, but today I think we should focus on the corporation and the limited liability company. Those are the most popular and the most commonly used.

GC: Let’s talk about the pros and cons for each one. How do you determine which one is right for you?

TK: A lot of people think a corporation is a little more technical--it requires a little bit more work-- where[as] the LLC can be smaller. But I tell people with the LLC, it can look as much like a corporation or a partnership as you want it to be. A corporation has a board of directors and shareholders, while an LLC just has people who own, who are generally called members, and it has to be a manager. It can be managed by the members, or they can hire a professional manager.

GC: So once you make the decision of which entity type you want, how do you go about formally establishing that?

TK: First of all, you have to go to the state. You have to choose a state where you wish to do business, your home state. For many large businesses, they choose Delaware. For other businesses, they tend to pick the state where they are located. If you want to have a corporation, you file what is called Articles of Incorporation. If you want to be an LLC, you form an LLC and the title for that varies from state to state, but it’s called a Formation Document.

GC: What other requirements--whether it’s local, state, federal--how much paperwork, how many hoop-jumping episodes are required here?

TK: There is not a lot for a corporation or an LLC in the beginning. Corporations and LLCs are part of state law. There’s no such thing as a federal limited liability company. So you file with the state, depending on what business you’re in. You may need to get certain licenses. Are you in the kind of business, for instance, pharmaceuticals? Are you selling alcohol to the public? These are all things that have to be taken into consideration.

GC: How do you make changes to an existing entity? Is that difficult, or pretty easy to make changes?

TK: It’s pretty straightforward. Some of the typical changes would be a change of name or a change of the registered agent. Any kind of information that was originally on the formation document, if that changes, you file what is called an amendment. And you do that in your home state.

GC: What is a foreign qualification, and how do you pursue that?

TK: That happens when the business becomes more successful. Perhaps you’ve been doing business in your home state, and you decide you wanted to branch out. If you do business in another state, you’re going to have to do what we call “qualify”. All states require anyone doing business there to qualify, and you qualify as a foreign corporation. Doesn’t mean you’re from another country; it just means you’re from another state. And you would file what is generally called Articles of Qualification, again, at the Secretary of State or state filing office.

GC: Are some states easier to deal with than others, or is it pretty straightforward no matter where you go?

TK: Amendments tend to be pretty straightforward. Some states will require evidence from your home state, while some states will take you at your word.

GC: Let’s talk about the ongoing compliance issues now. What type of ongoing maintenance is required once you got your entity established and you’re rolling along?

TK: Once a business is engaged in its business, it still has to keep up with the filing office of their state. They are generally required to file annual reports. They have to make any of those amendments we talked about if there’s a change. And they’re required to have a registered agent for service of process. Every state requires these businesses to tell them on the public record who a person would have to go to if they wish to sue that corporation or LLC. Most states, if you’re doing business there, they want to know their citizens can find you if necessary.

GC: How well are businesses keeping up with this? Obviously the benefits of establishing a formal entity so you’re not personally liable for anything that might go wrong--the value of that should be obvious. Are most business owners on top of that? Or is this something that they need to be prodded along to do?

TK: You have to do it. It’s not a good idea to act as a sole proprietor and put everything out on the line. Compliance depends sometimes on the size of the business, the knowledge of the person who is engaging in the compliance requirements, and again the type that you’re in. That’s why it helps to have some kind of professional that you know. Annual reports are a good example. [In] some state they are due annually. Others, biannually, and others at different times. So it’s important that you keep abreast of this information, and sometimes the best way to do that is with a professional. When you’re a business person, you’re busy running your business. But you want to make sure this is taken care of.

GC: So that’s why you might want to look at outside help, such as the good folks at CT. What is the value of a professional registered agent, or someone who can walk you through all this?

TK: Everyone needs to have a registered agent. It can be someone else. But the best thing about having a registered agent like CT Corporation is that we’re always here. We’re always ready to accept service of process, and send it along to you. So you would never have the problem where you would have something called a default judgment leveled against you. And a default judgment occurs when someone sues you, you don’t know about it, and you don’t show up in court. Well, then the plaintiff wins. No one wants to have that happen.

GC: Tamara, if folks are interested in getting help from CT, what’s the best way to contact you.

TK: They should go to our website. They can find information there. And we have people in every city willing to help you. We are very loyal to our customers, and we give you as much help as we can.

GC: Tamara, it’s been great to have you with us. Thanks for your time.

TK: Thank you.

GC: Tamara Kling. Government Relations and Regional Attorney for CT Corporation. I’m Greg Corombos.