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Maintenance Requirements for a Business Entity

Cite this article as: Jason Mance Gordon, "Maintenance Requirements for a Business Entity," in The Business Professor, updated January 12, 2015, last accessed April 8, 2020, https://thebusinessprofessor.com/knowledge-base/maintenance-requirements-for-a-business-entity/.
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Maintenance of Business Entity
This video explains what it means to maintain a business entity or to make certain it complies with law and remains in existence.

Next Article: Continuity of Business Entities


What are the “maintenance” requirements for a business entity?

Maintenance of a business entity is summarized as the administrative steps associated with starting and carrying on business as a given entity form. It entails the process of filing documents, holding meetings, maintaining records, observing formalities, and reporting necessary information to regulators. The requirements for starting a business vary considerably between entity types. Businesses entities that require formal procedures to organize also require formalized maintenance procedures. At the most basic level, these entities require the owners to file statements each year (along with annual fees) with the Secretary of State’s office, to hold business meetings, to maintain records, and to report information to regulatory authorities. The state may require that an entity maintain certain records, such as meeting minutes and resolutions, ownership logs, capital accounts, financial statements, etc. The Federal Government may require that business entities file specific information related to taxation or securities issuances. State and federal reporting requirements can also be industry specific or based upon the company’s size or status as privately or publicly-held.

  • Example: A group of friends and I form a corporation. We all vote and elect each of us as directors. We then appoint me as CEO. Our creation and maintenance requirements mean following the state-required duties for filing annual information and paying fees to the state. This could include voting as directors to approve our corporate documents. As CEO, I will be charged will filing those documents with the state.
  • Note: Generally, default business entities require little or no maintenance to continue on as a business entity. These businesses arise simply through the conduct of those involved and do not involve the formalized procedure for maintaining their operating status. While there are few formal maintenance requirements for default entities, there are still numerous tax formalities to follow. The lack of formal maintenance requirements associated with default entities often causes the owners to fail to follow other business formalities.

Discussion: Why do you think the government requires business entities to undertake these maintenance formalities? Why do you think it is important internally for businesses undertake formal maintenance? Which State and Federal agencies do you think the care about business maintenance? Hint: Think about taxation and securities law.

Practice Question: Visit your state’s secretary of state’s website. Can you locate the information and filing required to form and maintain each type of business entity recognized by your state? How do these requirements vary between teach type of business entity?

Proposed Answer

  • Yes. While the requirements are similar, depending upon the business entity, there is unique information, filing fees, and other registration requirements.

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