ComplianceLegalFinanceDecember 28, 2020

Managing Annual Reports by Yourself Can Be Tricky and Risky

Use a managed annual report service to help you meet multi-state filing deadlines when you are registered to do business in multiple states. 

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 corporation or LLC.

This 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 corporation or LLC, such as the names and addresses of your registered agent and 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.

Filing late, or worse yet, not at all, can result in serious consequences. Nearly every state will charge you a penalty for late filing. And until the filing is made the company will not be in good standing. That can jeopardize the company’s ability to get a loan, complete deals, or expand its operations. And, if too much time goes by, the home state can dissolve your company and a foreign state can take away its 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. Then, with a few clicks of a mouse, they are able to steal your business’s identity and use that identity to open credit cards and obtain products—that you may well be on the hook to pay for.

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.” Every state will penalize you for filing too late—and some will penalize you for filing too early.

If you are incorporated and do business in only one state, the situation is manageable. But, when multiple states are involved, it gets confusing in a hurry.

Take “Peter’s Pan Pizza” for example. Peter incorporated Peter’s Pan Pizza Inc. in State A on July 3, 2016. Business (not to mention the pizza) was good. On November 27, 2017, Peter’s Pan Pizza Inc. registered to do business in State B and on December 27, it was registered in State C.  In addition to running his restaurants, Peter 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 corporation to file during the first quarter of the calendar year—sometime in January, February or March. State C requires filing on April 1 only in even-numbered years—April 1, 2018.

Not only is it tricky to track all of the various deadlines and stay on top of the information required, you shouldn’t count on the state to remind you because not all states send out reminders of upcoming filing deadlines.

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-do’s” necessary to drive your business forward. If you operate in multiple states, retaining professional assistance becomes an even wiser decision. 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.

Mike Enright
Operations Manager
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