When you think of “annual reports,” you probably think of the detailed documents that large, publicly held corporations issue to shareholders or potential investors. Issued to inform shareholders and regulatory organizations such as the Securities and Exchange Commission about public companies, these annual reports tout the company’s accomplishments for the past fiscal year, look ahead to the future, and provide detailed financial statements.
For small businesses whose stock isn’t publicly traded, the type of annual report your business needs to file is nowhere near that elaborate. (Phew!) Here’s a closer look at what an annual report is and how to file it.
When you form a business entity, you become subject to federal, state and local government requirements—one of which is the requirement to file an annual report with the Secretary of State. The report gives the state up-to-date information on your business structure, its officers and agents, its finances and its shares. The data is often used to calculate your state franchise tax.
Annual reports are called different things in different states. For example, in Delaware, where my company is incorporated, it’s known as an Annual Franchise Tax Report. In California, where my company is located, it’s called a Statement of Information.
Filing your annual report is part of maintaining your business entity in good standing. If you don’t file your annual report or don’t meet the filing deadline, you lose your business’s good standing and will have to pay penalties, fees and possibly even interest to reinstate it. Potential customers may refuse to do business with you, vendors may refuse to extend credit to you, and your business may even be dissolved by the state. In other words, this is more than just a formality.
The procedure for filing an annual report varies depending on several factors, including:
However, the process is quite simple and can be done online. Visit your state government website; you’ll generally find the filing information in the Business, Corporation, or Franchise Tax section. The site will explain the information you need—usually, listing your business’s address, its directors and officers, and some basic financial information. When you’ve completed the form, you can pay your filing fees and franchise tax either by mail or online.
Once you file your annual report the first time, all you need to do is update your form with new financial information every year and make any other necessary changes.
In most states, business entities are required to choose a registered agent when they establish the business. A registered agent is a third party, registered in the same state where you established your business, who is authorized to receive official notifications and correspondence (such as tax forms or notices of lawsuits) on behalf of your business.
If your business entity is registered in a state where it’s not physically located, you must have a registered agent so there’s someone in the state who can receive official correspondence at all times. For example, as I said, my company is registered in Delaware, but physically located in California. Our registered agent is The Company Corporation (disclosure: they’re also a client).
Your registered agent can keep you in compliance by alerting you when your annual report filing is due, and even filing it for you for a fee. That way, no matter how busy you are taking care of business, you can make sure you’re taking care of the proper paperwork, too.