Formation isn't a one-time event. You've created an entity that requires ongoing maintenance:
Annual Requirements
1. Annual Report / Statement of Information
Most states require annual or biennial reports updating:
Current address
Current registered agent
Current officers/managers
Any name changes
Due date: Varies by state (often anniversary of formation)
Cost: $50-$800+ depending on state
2. Franchise Tax or Annual Fee
Many states charge annual fees just for existing (as of this writing, subject to change):
- Delaware: Minimum $300/year franchise tax
- California: Minimum $800/year franchise tax (even if you made $0)
- Texas: Franchise tax based on revenue (threshold exclusions apply)
3. Business License Renewals
Most business licenses are annual and must be renewed.
Ongoing Compliance
4. Proper Record Keeping
To maintain liability protection, businesses commonly:
Keep meeting minutes - Document major decisions, even if sole owner
Maintain resolutions - Formal documentation of business decisions
Keep financial records - Separate accounts, clean books
Update ownership records - Updated cap table, any transfers documented
5. Annual Financial Tasks
Common annual financial obligations include:
✓ Tax returns - Federal and state
✓ Estimated tax payments - Quarterly for most small businesses
✓ 1099 forms - For contractors paid $600+
✓ W-2s - For employees (due by January 31)
✓ Sales tax filings - Monthly, quarterly, or annually depending on revenue
6. Registered Agent Requirements
Businesses must always have a registered agent with a physical address in their state of formation. If you move or your agent closes:
- Update immediately
- Most states charge $25-$50 to change registered agent
Common Post-Formation Mistakes
Mistake #1: Treating the Business Like It Doesn't Exist
Some founders form an LLC but don't operate like one:
✗ Never using the business name
✗ Mixing personal and business funds
✗ Forgetting to sign contracts under the business name
✗ Never documenting business decisions
Potential result: Court can pierce the corporate veil, eliminating liability protection.
Mistake #2: Missing the Annual Report Deadline
If a business gets administratively dissolved, owners may have to:
✗ File for reinstatement (with fees)
✗ Pay back fees and penalties
✗ Possibly lose business name if someone else takes it
✗ Deal with broken continuity for contracts, licenses
Mistake #3: Assuming Formation Completes the Process
Formation is the beginning, not the end. Some founders:
✗ Never get an EIN
✗ Never open business bank account
✗ Never file for required licenses
✗ Never create operating agreement
Then six months later they face challenges when they need to sign a contract, receive a cease and desist for operating without a license, have a dispute with a co-founder, or want to bring on an investor.
Mistake #4: Ignoring Foreign Registration Requirements
Operating in multiple states without proper registration can:
✗ Create tax liabilities
✗ Result in fines
✗ Make contracts unenforceable
✗ Block access to that state's courts
Mistake #5: Never Making Tax Elections
Entities have default tax treatment, but it might not be optimal. Missing deadlines for:
✗ S-Corp election (typically March 15 or 2.5 months after formation)
✗ 83(b) election (30 days after receiving restricted stock)
✗ Fiscal year election
Can potentially cost thousands in excess taxes.
Continue Reading
To explore long-term costs and lifecycle stages, continue reading Hidden Costs & Lifecycle of Business Formation.
Learn more about Business Formation for startups.
To review the steps founders often take right after forming their business, see What to Do After Forming a Business.
To understand how structural selection affects business operations, read Should Your Startup Be an LLC or a Corporation?
To avoid common foundational errors before and after formation, check out 5 Business Structure Mistakes Founders Make (And How to Avoid Them).