When you form your company as a limited liability company (LLC), you realize benefits such as greater business legitimacy, protection of your personal assets, and more tax planning strategies.
But operating an LLC also brings ongoing compliance responsibilities, including filing annual reports and paying associated fees and/or franchise tax. Some states also require that LLCs file certain initial reports shortly after formation.
In this article we explain what you need to know about annual reports, your filing responsibilities, and the ins and outs of franchise tax for your LLC.
What is an LLC annual report?
It’s important to understand that an LLC annual report isn’t the same as the exhaustive financial statements that major corporations release each year to shareholders, analysts, and regulators.
Instead, an LLC annual report provides basic information and facts about your company, such as the names and addresses of your registered agent and directors and managers. It’s a comprehensive report on the company’s activities throughout the preceding year. Annual reports are intended to give shareholders and other interested people information about the company’s activities and financial performance.
States require an annual filing because they consider it important that this information is freely available to the public and because many details about a business can change in the span of a year. Furthermore, some states collect certain financial information about your LLC to determine the amount of franchise tax it may owe.
What are the penalties for not filing an LLC annual report?
Filing late or not at all will have its consequences. Most states have a penalty for late filing. In addition, until the filing is made, your company will not be in good standing with the state. This can jeopardize your business’ ability to secure a loan, close contracts, or expand operations.
If you wait too long to file, your home state can dissolve your company and a foreign state (a state where you have business operations outside your home state) can remove your right to do business there.
Once dissolved, your LLC loses its limited liability protection. Loss of good standing can also affect your company’s ability to bring an action in state court, such as suing another party for breach of contract.
What information do you need to include in an annual report?Although the information required varies by state, the following information is typically required in an annual report:
- Your company’s legal name
- In the case of a foreign company, the fictitious name it qualified under, if any
- The principal office address in the state, if any
- The principal office address wherever it’s located
- The name of your registered agent
- The registered office address
- The names and business addresses of managers and members of the LLC
When are LLC annual reports due?
The filing date for annual reports for an LLC varies from state to state and may even be different from other entity types within a particular state. The due date is determined by either a fixed date according to entity type or a due date based on the anniversary of your entity’s formation or qualification in that state.
However, in recent years, more states are moving towards the LLC formation anniversary date as the due date. This sounds logical, but that can make it hard for business owners to keep track of due dates. To complicate matters, due to a reduction in resources, many states have eliminated the practice of sending reminders to alert business owners that their annual report is due.
To avoid fines and penalties, the burden for tracking all relevant due dates therefore falls on the business owner. If you are registered to do business in more than one state, you may also have to file annual reports in each state — adding more to your plate.
Understanding franchise taxes
Despite its name, franchise taxes are not taxes imposed on franchises. Rather, a franchise tax is imposed by states on businesses for the privilege of being organized or registered to transact business in that state. Think of it as the state’s fee for providing the statutory authority for your LLC to operate in that state and claim the benefits that come with being an LLC.
Franchise tax is calculated differently depending on the state where your LLC is formed and the type of entity you operate. Typical methods used to calculate the tax include business income, business assets, or the number of outstanding shares of corporate stock and the par value of those shares. It can also be calculated based on a combination of these factors or be a flat fee.
What is the franchise tax due date?
In many cases, franchise tax is due at the same time that you file your annual report.
However, certain states may have separate dates for each obligation.
Keeping track of your LLC annual report deadline
The filing process itself isn’t hard but it can be time consuming. Furthermore, staying on top of those deadlines can be challenging — especially if you do business in more than one state. To ensure you stay on top of all filing requirements, be sure to mark your calendar and add a reminder so that you leave yourself enough time to prepare and file your next report. To provide peace of mind, an annual report service can help ensure your reports are filed accurately and on-time.
For more information on LLCs, see How to form an LLC: What is an LLC, advantages, disadvantages & more.
Learn more about BizFilings’ Managed Annual Report Service.