If you operate your business as a formal entity, such as a corporation or a limited liability company, then it is very likely that you are required to file an "Annual Report" with the state where you formed the entity. What's more, if you do business in states other than your home state, you may very well have annual filing obligations in those states as well.
Betty operates Fabulous Flowers, Inc. She incorporated in her home state of Wisconsin, but operates stores in Illinois and Iowa, as well as in Wisconsin. Betty must file information reports in all three states.
If you fail to file these required reports, you can face stiff penalties, which can range from fines to the administrative dissolution of your entity or the revocation of its right to do business in a state. (Dissolution of your entity can make you personally liable to claims of your business creditors!)
What information is required?
What information is required depends upon the state's purpose in imposing the report requirement. All states want to make sure that its residents, investors and government agencies have the information necessary to locate and communicate with business entities operating in the state. However, some states also impose a franchise tax on entities (especially 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.
A franchise tax is a tax imposed on the privilege of carrying on a business as a statutory entity, such as a corporation or an LLC. 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. In other states, you must take the initiative to retrieve, complete and file the return by the due date.
When are reports due?
Unlike tax return filing dates, the due dates for annual reports vary widely from state-to-state (and even by entity type within a particular state). The due date 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 on the secretary of state's office, it makes in harder on the business owner to keep track of due dates, particularly if you do business in multiple states. As a result of the economic downturn, 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.
Betty's Fabulous Flowers, LLC was formed in Wisconsin in June. It qualified to do business in Illinois is September and in Iowa in October. Wisconsin and Illinois based their annual report due dates on the entity's anniversary date. She will need to file her Wisconsin Annual Report on June 30 and her Illinois Annual Report on September 1. Iowa, however, is one of the few states that requires biennial rather than annual filing: Iowa's report is due on April 1 of even-numbered years. Therefore, Betty does not have to file a report in Iowa in 2013.
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. For example, Betty's Fabulous Flowers, Inc. will pay a $25 fee to Wisconsin if she files electronically, but a $40 fee if she wants to be old-school and use a paper form. And, a growing number of states now require electronic filing.
Many small business owners elect to "outsource" their annual report filings to a company that specializes in entity compliance, such as BizFilings. One option provides on-going compliance management as a managed-annual-report-service. The other option is included with registered-agent-services which features monitoring annual report filings and sending alerts when they're 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.