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Annual reports typically refer to a document that publicly traded corporations provide each year to their shareholders, describing the company’s financial performance. An annual report can also refer to a document that corporations and limited liability companies (LLC) must file each year with the state. This annual report contains updated information about the company’s address, registered agent, and revenue.
Starting and operating a small business is no easy feat, and one of the more time-consuming and challenging aspects typically is 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 business annual reports are one 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 the different types of annual reports, what you need to include in yours, and how to file it.
Annual reports can refer to documents that you file with government entities or with your shareholders or clients.
Here is a summary of the three main types of annual reports:
Most commonly, people think of the first type of annual report. The Securities and Exchange Commission (SEC) requires publicly traded corporations to file annual reports with the SEC, where they’re visible to shareholders, the media, and the general public. These reports are filed on Form 10-K, and they contain an overview of the company’s financial performance for the year, along with audited financial statements. Here’s an example of an annual report from Alphabet, Inc., the parent company of Google.
Small businesses that are privately owned have much less onerous annual report requirements. When you first started your business, you became subject to federal, state, and local government requirements. Many states and some localities require registered business entities, such as corporations and LLCs, to file an annual report with the secretary of state. These annual reports give the state up-to-date information on your business structure, its officers and agents, and its finances. The data from these annual reports is often used to calculate your state business taxes.
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.
Nonprofit institutions also file annual reports to keep their clients and donor base informed. In fact, most charitable nonprofits that are exempt from federal taxes must file an annual report on Form 990 with the Internal Revenue Service (IRS). This form is available for public viewing on GuideStar. Apart from this form, most nonprofits also send a separate report to their network.
A nonprofit’s annual report can be used to highlight the organization’s mission, important fundraisers or milestones from the previous year, and financial performance. Many nonprofits use their annual report as an opportunity to thank supporters and volunteers, and to encourage donations to their organization.
Source: New Jersey Division of Revenue and Enterprise Services
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.
Most LLC annual reports include the following information:
Corporation annual reports contain similar information:
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 to include.
The procedure for filing annual reports varies depending on several factors, including:
However, the process to file annual reports is quite simple and can typically 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 to provide and 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. Pay close attention to the filing deadline for your annual report, as there may be fines for late filings.
Most states charge a small filing fee that you must include with your annual report. Apart from the annual report, your business might also be subject to state or local business taxes.
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.
The annual report might seem like just another item on your to-do list, but it can be more important than that. If your business is a nonprofit or publicly traded company, the annual report is a great opportunity to communicate with your donor base and shareholders. If you have a privately owned small business, then filing your annual report is required to keep legally operating. Make sure you understand your state and locality’s annual report requirements and file your annual report on time.
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