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Starting and operating a small business is no easy feat, and one of the more time-consuming and challenging aspects is typically managing your business finances. Unless you started a business in the finance industry, this is likely not your passion. But, it is a necessary aspect to not only ensure that your business is doing well (and will continue to do so), but also to continue to legally operate. Small businesses’ annual reports are one such crucial piece of this financial puzzle.
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.
However, for small businesses whose stock isn’t publicly traded, their annual reports are nowhere near as elaborate. In this guide to small business annual reports, we’ll explain what an annual report it, what you need to include in yours, and how to file it.
Back when you first started your business, you formed a business entity and thus became subject to federal, state, and local government requirements—one of which is the requirement to file an annual report with the Secretary of State. Annual reports give the state up-to-date information on your business structure, its officers and agents, its finances and its shares. The data from these annual reports is often used to calculate your state franchise tax.
Annual reports are called different things in different states. For example, in Delaware, annual reports are known as Annual Franchise Tax Reports. In California, on the other hand, annual reports are called Statements 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, filing annual reports is more than just a formality.
Annual reports for small businesses whose stock is not publicly traded require, as we mentioned, much less information than those for public corporations. While the annual reports for public corporations are more of a presentation on how the company performed over the year—including everything from a narrative description of the year with accompanying photos to a letter to shareholders, financial statements, and more—your annual report will be much less involved.
The requirements for each annual report will depend on the state in which you’re filing. Your state’s government website will explain the information you need—usually, listing your business’s address, its directors and officers, and some basic financial information.
The procedure for filing annual reports varies depending on several factors, including:
However, the process to file annual reports 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. As we mentioned, the site will explain the information you need and provide the form to fill out. When you’ve completed the annual report 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.
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.