In this article, we'll take a closer look at the third step—meeting annual report requirements.
When an entity is formed or incorporated within a jurisdiction, it's generally necessary to file annual compliance reports and submit them to the Secretary of State's office. Failure to do so can lead to significant penalties and a lack of good standing in the jurisdiction.
Having the proper processes to handle these obligations can help ensure that no annual report requirement or deadline is overlooked.
The importance of filing annual reports
Failure to submit timely annual reports can lead to serious consequences. In most cases, late fees are charged by the state when reports are filed past the specified due date. Organizations that fail to file (or pay assessed fees) may lose their good standing designation, which can compromise an entity's ability to operate effectively.
In the most serious cases, sustained non-compliance may result in the administrative dissolution of domestic companies. Additionally, non-compliance may also result in the administrative revocation of the ability to operate as a foreign company. Non-compliance penalties can strip an organization of many of the usual benefits of operating as a limited liability company (LLC) or a corporation.
Penalties and sanctions aren't the only consideration. Not filing annual reports can impact an organization's ability to secure financing, as the "good standing" status is often a prerequisite for receiving capital from lenders. Many lenders will ask that good standing certificates be produced during the borrowing process.
Companies outside of good standing may also find their ability to land new contracts affected. Much as with lenders, many companies and agencies require proof of good standing when bidding out contracts.
It's also important to remember that annual report requirements do not automatically cease when an organization stops doing business within a state's borders. Until an organization completes a full and legal withdrawal from that jurisdiction, annual reporting requirements typically stay in place.