Managing annual reports by yourself can be tricky and risky, especially when you are dealing with businesses in multiple states. Using a managed annual report service can help you meet various filing deadlines when you are registered to do business in more than one state.
An annual requirement for LLCs and corporations
Incorporating or forming your limited liability company (LLC) provides you with increased business legitimacy, more tax-planning strategies, and protection for your personal assets. But, along with these great benefits come ongoing responsibilities. One of these is filing an annual report (or, in a few states, a biennial report) with your formation state and with every state where you have registered to do business as a foreign LLC or corporation.
What is the purpose of filing an annual report?
An annual report doesn’t include the exhaustive financial statements provided by major corporations to shareholders, analysts, and regulators. Instead, it provides basic contact information and facts about your LLC or corporation, such as the names and addresses of your registered agent and your company’s directors/managers. Some states collect some financial information if they also use the annual report to determine the amount of franchise tax your company owes.
What are the consequences for not filing an annual report?
Filing your annual report late, or worse yet, not at all, can result in serious consequences. Nearly every state will charge a penalty for a late filing.
Plus, until the filing is made, the company will not be in good standing with the state. That can jeopardize the company’s ability to get a loan, complete deals, or expand its operations. If too much time goes by, the home state can dissolve your company and a foreign state can take away your company’s right to do business there. This means you may lose your limited liability protection. You may also be unable to bring an action in state court. The courts will set an award of damages aside — even if the defendant admitted complete liability — because the plaintiff company did not have standing to bring an action in court.
What’s more, scam artists are known to troll Secretary of State websites looking for businesses that are out of compliance with the intention of stealing your business’s identity. After putting your business back in good standing, these criminals will appear to be acting officially on behalf of the business. They may change the address or other contact details of your business with the state and proceed to open credit cards or take out loans.
Why annual report compliance can be challenging for multi-state businesses
It’s one thing to know that you are going to have to file one or more annual reports. It’s an entirely different thing to keep track of all of the various deadlines and requirements. Why? Because in many states, your annual report filing deadline is based on your incorporation/formation or foreign qualification date.
These states take this “anniversary date” as the starting point and then provide a period of time during which the annual report is due. For example, one state might expect you to file an annual report at some point during the three-month period beginning with the first day of the entity’s anniversary month. Yet, a neighboring state may require filing during the anniversary month itself. And, like Goldilocks, states want the compliance date to be “just right”. States will penalize you for filing too late.
If you are incorporated or have an LLC and do business in only one state, annual report compliance is manageable. But, when multiple states are involved, it gets confusing in a hurry.
Take “Backyard BBQ” for example. The business owners formed Backyard BBQ LLC in State A in July. Business (not to mention the food) was good. The following year, Backyard BBQ LLC registered to do business in State B, and it also expanded into State C. In addition to running the restaurants, the LLC owners must track compliance deadlines in all three states. State A requires an annual report filing within the 60 days immediately preceding the first day of the anniversary month — in May or June of each year. State B requires a foreign LLC to file during the first quarter of the calendar year (sometime in January, February, or March). State C requires a biennial report filing on April 1 only in even-numbered years.
Not only is it tricky to keep track of all of the various deadlines and to stay on top of the information required, you also shouldn’t count on the state to remind you. Not all states send out reminders of upcoming filing deadlines.
Conclusion
If you are not anticipating expanding beyond your home state — and you have the time and inclination to track filing deadlines and rules—a do-it-yourself approach might be feasible. But, it may not be the best use of your time and energy as you are immersed in a thousand-and-one “to-dos” necessary to drive your business forward.
If you operate in multiple states, retaining professional assistance becomes an even more practical decision.
Learn more
BizFilings’ Managed Annual Report Filing Service monitors, manages, and files each of your annual reports — on time and according to state specifications—ensuring that your business stays in compliance.