Annual reports are an important part of doing business and maintaining good standing with the state, but for many business owners it can feel like a nuisance and be easily overlooked.
Self-managing annual report preparation and filing across multiple jurisdictions comes with significant risk, because if you forget to file your annual report, it could cost your business thousands of dollars and result in some pretty severe penalties.
What happens if I don’t maintain annual report compliance?
After missing an annual report, the first thing that will happen is there will be a change in your business’s status. When a report is late, your business will no longer be considered in good standing, and the jurisdiction will change your company’s standing to “inactive” or “ceased good standing.” But what other consequences should you expect to face?
The most obvious consequence of failing to file your annual report in a timely manner is that most jurisdictions are going to assess some type of late fee. These late fees can be very substantial, depending on the jurisdiction. For example, Illinois assesses fees for every month your report is late, and five-and-a-half months after the due date, if your report is not filed, your entity will be revoked. Wyoming has a similar system and in that state, reinstatement can cost you over $10,000. Additionally, some states, including Wyoming and Illinois, base their fees on your financial information, which means fees can become exorbitant.
After a certain amount of time past the due date, if the report still isn’t filed, the jurisdiction will revoke your company’s good standing or put it into a forfeited status. Once this occurs, a reinstatement must be filed. Most states require the past due annual report as well as an additional certificate of reinstatement and more fees.
In the state of Missouri, to be reinstated, you’re required to obtain a tax clearance from the Department of Revenue to ensure all of your taxes are up to date and current.
If you’re registered in Utah as a foreign entity, the state of Utah does not have a statute that lets you reinstate. You have to completely re-qualify your business. This can have substantial ramifications, including a new anniversary date and a new state ID number, which can affect your licensing in other areas.
Business operation impediment
If you’re not in good standing, you are unable to obtain a certificate of good standing for the secretary of state. Certificates of good standing are used for a variety of reasons in your daily business operations, and if your reports are not current, you will not be able to obtain that documentation.
This means your ability to conduct business is compromised. For example, you may be unable to open up a bank account, as many states require confirmation that your entity is in good standing to open an account.
Loss of corporate protection
While your company is in inactive or revoked status, you don’t have the protections that come with being a corporation in good standing. For one, you could potentially lose your company name. If another company comes along with a similar name and registers to do business in that state, inactive entities are generally not checked for name conflict. Secondly, you have the inability to bring a lawsuit.
Want to avoid these negative consequences? CSC can help your business stay in good standing and file your annual reports for you. Learn more about our Annual Report Preparation and Filing services here.