If you operate your business as a formal entity, such as a limited liability company (LLC) or corporation, then it is very likely that you are required to file an "annual report" with the state where you formed the entity. (In some states, LLCs and corporations are required to file a biennial statement or report every two years.)
What if I have businesses in multiple states?
If you do business in states other than your home state, you can expect annual filing obligations in those states as well.
Example
Betty operates Fabulous Flowers LLC. She formed the LLC in her home state of Wisconsin. In addition to operating in Wisconsin, she also has retail stores in Illinois and Iowa. Every year, Betty will need to file annual reports for her LLC in Wisconsin and Illinois. Iowa requires LLCs (and other statutory entities) to file a biennial report, so Betty will need to file an annual report with the state of Iowa every two years.
What are the penalties for not filing an annual report?
If you fail to file a required annual or biennial report, you can face stiff penalties. These can range from fines imposed by the state to the state administratively dissolving or revoking your entity. Administrative dissolution means that you can no longer legally conduct business in a state. It can also make you personally liable to claims from your business creditors.
What information is required in an annual report?
The information required in an annual or biennial report depends upon the state's purpose in imposing the report requirement. All states want to make sure that their residents, investors, and government agencies have the information necessary to locate and communicate with business entities operating in the state.
Some states also impose a franchise tax on entities (including LLCs and corporations) that do business within their borders. These states may require reporting of a wide variety of financial information to help them determine the amount of franchise tax due.
Franchise tax tip
A franchise tax is a tax imposed on the privilege of carrying on a business as a statutory entity, such as an LLC or corporation. The franchise tax is often measured by the business' income, but may be based upon other criteria, such as a corporation's authorized shares or paid-in capital. In most states, the franchise tax is imposed separately and in addition to the state income tax.
Some states make the business owner's job easier by sending you the appropriate form, preprinted using the most current information on file. Your job then becomes a matter of double-checking to see if the information is still accurate and making any necessary corrections. With other states, you must take the initiative to retrieve, complete, and file the return by the due date.
When are annual reports due?
The due dates for annual and biennial reports vary widely from state to state and even by entity type within a particular state. (In other words, states may have one filing deadline for LLCs and another filing deadline for corporations.)
The due date for an annual or biennial report is determined in one of two ways:
- A fixed date by entity type, or
- A due date based on the anniversary of your entity's formation or qualification in that state.
In recent years, more and more states are moving to the anniversary date as the due date. While this makes it easier for the Secretary of State's office, it may make it harder for a business owner to keep track of due dates, particularly if that owner has businesses in multiple states. Plus, many states have eliminated the practice of sending reminders to alert the business owner that the annual report is due. Therefore, to avoid fines and penalties, the business owner must keep track of all the relevant due dates.
While most states still permit you to file paper copies of your annual report, many states now charge a higher fee if you opt to file a paper return. And, a growing number of states now require electronic filing.
Learn more
Many small business owners elect to use an annual report service company that specializes in entity compliance, such as BizFilings. One option is to go with on-going compliance management as a managed annual report service. Another option is to use a registered agent service that also provides a monitoring service for annual report filings and alerts you when your filings are due. Using compliance professionals frees you from having to worry about when the annual report is due, what information is required, what forms must be used, and how the forms must be filed.