Annual Reports Best Practices: How to Stay in Good Standing

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Caitlin: Hello, everyone, and welcome to today's webinar, "Annual Reports Best Practices: How to Stay in Good Standing." My name is Caitlin Alaburda, and I will be your moderator.

Joining us today are Andrea Jonaitis and Kevin Eissner. Andrea is a senior sales engineer in the Corporate and Legal Solutions Group at CSC. Since joining CSC in 2017, Andrea has specialized in global subsidiary management and entity management, working with prospects to present an accurate and clear scope of services, including helping subsidiaries stay in compliance as well as demonstrating CSC Entity Management. Kevin is a senior customer service representative in the Annual Reports Department at CSC. He's responsible for keeping clients in compliance with all states and some international jurisdictions.

And with that, let's welcome Andrea and Kevin.

Kevin: Thank you for the introduction, Caitlin. I just wanted to take a moment to introduce myself. My name is Kevin Eissner. As Caitlin said, I'm a senior customer service representative in the Annual Reports Department. I have been with CSC going on seven years now, and I have worked in the Annual Reports Department my entire career here. I started off as a filing agent. I was actually going on the state websites and completing the annual report filings. I have now moved into my customer service representative role.

Andrea: Hi, everyone. This is Andrea Jonaitis. Thanks so much for joining us today. Kevin and I are so excited to have you with us as we dive into our discussion around steps and best practices to help you stay in good standing and to share a little bit about how CSC can assist you with that initiative.

Before we get into our agenda, I want to take a brief moment to talk about who we are as a company. I took a peek at our attendees on the line today, and I see a fair portion of our audience currently using CSC and already familiar with us as an organization, but I also see some new names and organizations that do not currently partner with CSC and so may not be familiar with who we are. I thought it would make sense to kick us off with taking a brief moment to tell you a little bit about who CSC is as an organization for those of you that might not be familiar.

So this slide includes some high-level statistics about CSC as an organization and some of the markets that we serve. CSC really is a global organization with over 3,000 employees in 14 countries and 46 locations around the world. Our global headquarters is in Wilmington, Delaware, which is where we happen to be based out of today. CSC as an organization is privately held. We're able to trace our roots back all the way to 1899, so we've been in business for well over a hundred years. We are the largest U.S.-owned registered agent, and we're also the largest registered agent by market share. And the registered agent and annual report services may be what CSC is most notably known for, but we also offer a range of other services and technologies across many diverse areas, working in areas like taxed, UCC, digital brand services, global entity management and global financial markets, e-Recording. There are so many areas that we can assist.

In fact, over 180,000 corporate legal departments utilize CSC services, and over 90% of the Fortune 500 use us for at least one of our services. We're also proud to say that we protect more than 65% of the 100 Best Global Brands.

I also want to quickly mention our mission at CSC, and this will hopefully start to come into focus as we go through our presentation today. CSC's mission is to provide world-class service and offer solutions that integrate the services that we offer along with powerful technology tools. And further on into today's webinar we're going to bring these concepts together and talk about some of the services and technologies that we offer pertaining to annual reports that can really help our clients and ensure that their entities remain in good standing. But with that said, let's get into today's agenda. So we will get into the meat of our presentation now.

Our agenda today is pretty jam-packed, so we'll do our best to be as concise as possible while still providing you with as much information as we can. In our conversation today, we are going to start with the basics, defining what an annual report actually is. We want to make sure that everyone is on the same page with that terminology as we get deeper into some of this content today. We'll also talk about the filing and reporting deadlines and what drives those deadlines as it can really vary greatly from jurisdiction to jurisdiction. We'll dig into some of the challenges that we commonly hear from organizations, customers, and prospective customers when it comes to maintaining their good standing compliance and handling annual reports and even what can happen if organizations miss filing deadlines or requirements.

We'll talk a little bit about the differences between business licenses and annual reports. There are some critical distinctions there that we want to cover. And we'll also share some insights for 2023 and what we're anticipating for this year based on our trends and observations that we've been watching.

Of course, we're really excited to share with you some of the benefits for partnering with CSC for handling annual reports and for using CSC for a number of our compliance services. I mentioned at the end of our session we'll have a brief demo of our technology portal so that we can show you how we can keep you informed and organized when managing your compliance requirements. And finally, we'll have some questions that you can kind of ask yourself to evaluate how strongly you feel in terms of your ability to maintain your good standing compliance and handle all of the annual report obligations that your organization faces.

So let's really start at the beginning, which is making sure that we're all on the same page with what we're referring to when we use the term "annual report." Kevin mentioned he is one of our annual report experts here at CSC, so he's going to kick us off by guiding us through that terminology here and define what we mean when we use the term "annual reports."

Kevin: Thank you, Andrea. I'm happy to share some detail about the annual report filing. First and foremost, what is an annual report? An annual report is a required filing to keep your entity in compliance with the secretary of state office. Each state has their own variation of the filing. These filings typically ask for your basic entity details, such as your principal business address, officers and directors of your corporation or members and managers of your LLC. Some states want to know what kind of business you're conducting in the state. They call that the business purpose.

Other states use the annual report as a survey opportunity, such as West Virginia. They'll ask for how many employees you have working in the state of a West Virginia. New Jersey wants to know information such as your workers' compensation policy information.

The fees for annual reports can vary greatly from state to state as well. In some say, such as Colorado, the filing fee is as low as $10. In Nevada, it can be as much as $650. For Delaware, for large corporate filers in Delaware, large corporations can pay $250,000 to Delaware in franchise tax on a quarterly basis.

Well, there are some examples of different names that different states call their annual report filing. California calls their annual filing the statement of information. That's the basic filing where you just report your principal business address, officers, directors, and your business purpose. The occupational tax report is filed with the Nebraska Secretary of State, and the filing fee is based on the real and personal property figure you report. The annual list is filed with the Nevada Secretary of State, and you just report a list of your officers and directors. That also accompanies a state-level business license filing. In Delaware, it's the franchise tax report, where the annual franchise tax is paid with the annual report filing, and the franchise tax is calculated based on the amount of authorized shares the company has.

All right. So when are my annual reports due? Just like the fees vary from jurisdiction to jurisdiction, the due dates of your annual report filings will also vary from state to state. Due dates, they have several factors that can affect when your annual report is due, one of them being the fiscal year-end. Some states, such as Tennessee, when you file your initial incorporation or qualification with the state, you will report your company's fiscal year-end. So in Tennessee your annual report is due three months after your fiscal year-end. So if you have a December 31st fiscal year-end, your annual report will be due by April 1st of the following year. Massachusetts is three and a half months after your fiscal year-end. So if you have a December 31st fiscal year-end, your annual report is due March 15th annually.

Some states your annual report is due in your anniversary month. So if you qualified or incorporated in September, your annual report is going to be due either September 1 or September 30th each year, depending on the state. Other states, your annual report will be due on the anniversary date. So if you incorporated on May 4th, 2023, your annual report is going to be due May 4th every year. Arizona is a prime example of that.

There's also rare occasions where the jurisdiction will assign you an annual report filing due date. Every so often for older companies, such as Arizona, if you were registered prior to 1997, they will just assign you a due date and you have to file by that due date every year.

So due dates can vary from jurisdiction to jurisdiction, and CSC has the knowledge of when those filings are due.

So what are some challenges of managing annual report filings? I would say the biggest struggle is just staying on top of the due dates. As I noted previously, the due dates vary greatly from jurisdiction to jurisdiction.

It can also be challenging to understand each individual state's filing and processing requirements. Some filings are completed online. Others are completed on paper. If it's a paper filing, where do I send my paper filing? Who do I make the check out to?

CSC's compliance calendar tool calendars all due dates for your annual report filings based off your registration information, your entity type. This is something we make available to our customers. We have a lot of knowledge of annual report filing requirements.

It can also be a handful just to manage all the relevant data you need to complete annual report filings, such as where do I keep my officer and director information, where is the stock information located.

Also for customers with larger portfolios with business entities registered all across the country, it can be very time consuming to figure out how to complete all these filings. Some larger customers, real estate companies, they have hundreds of business entities. It can be very time consuming to determine who and where I need to file.

So what happens when you fail to file a report timely? There are several things that can happen, number one being you will lose your good standing, which means you are no longer in compliance with the secretary of state. So first you'll fall out of good standing. Then after a certain amount of time, it varies from jurisdiction to jurisdiction, you will eventually become revoked by that state's secretary of state, which means you have forfeited your right to transact business in the state, which can cause several issues.

Number one, you will lose the exclusive rights to your name. So if the business entity becomes revoked and another company is registering their business in the state today and the name is available, they will be able to register with your name if your company is in a revoked status.

You'll also have the inability to obtain a good standing certificate, which is a document that is needed for many business activities, such as opening a bank account. A lot of banks, they're going to want to see that your corporation or LLC is in good standing before they allow you to open a bank account with them. You will also have the inability to bring a lawsuit, and you'll just have a compromised ability to conduct business.

When you do go to reinstate to bring your company back into good standing, you're going to have to pay penalties and interest, which can be significant depending on where you're reinstating. Illinois, for example, they charge penalties and interest by the month, and depending on the amount of paid-in capital you have with them, the fees can be quite substantial.

Andrea: So far in our discussion, we've mostly been referring to U.S. subsidiaries, but annual reports can be required or pertain to companies with a global presence as well. Managing compliance reports and good standing can become much more nuanced and challenging, especially if you have a broad global footprint. So we've kind of broken it down here into a couple of areas.

U.S. territories, like Guam, Northern Mariana Islands, Puerto Rico, and the U.S. Virgin Islands, they all have annual reports or equivalent filings. There's a critical difference that's more prevalent in jurisdictions outside of the U.S., and that really is the fees and penalties that are incurred for missing filings. Kevin highlighted some of the repercussions of missing these annual report filings, but these consequences can become even more severe for entities that are domestic outside of the U.S., really to the point where there could be not just civil but also criminal proceedings in some cases for falling out of compliance.

Now we are keeping an eye on the Q&A widget, and I saw a question come into the widget from Lisa, specifically about Canadian requirements. Canada is kind of an interesting part of the world to talk about, and requirements differ based on the domestic jurisdiction of a Canadian entity. An extra-provincial registration is an entity with a domestic jurisdiction outside of Canada. For example, it could be a U.S. domestic entity that is registered to do business in a particular province of Canada, or it could be an entity that's formed at the federal level in Canada. These extra-provincial registrations likely require that a registered agent be appointed and the completion of annual reports and having those reports filed appropriately. Entities that are actually formed in and domestic to Canada commonly have additional corporate secretarial requirements beyond basic registered agent and annual reports. That can include things like annual general meetings. There are Canadian residency requirements for the location of board members. So again, kind of nuanced from jurisdiction to jurisdiction.

On top of the corporate secretarial services to maintain other entities domestic outside of the U.S., the compliance requirements can vary drastically by country or jurisdiction and entity type. But again, the fees and penalties for missing these deadlines remains just as severe. Not only could missed filings worldwide cause months of additional work, they also can have serious legal consequences for your business and much higher financial penalties than we typically see here inside of the U.S.

Kevin: So I know some of you are probably thinking, "What about my business licenses?" It's important to understand that business licenses and annual reports are two separate filings with separate requirements.

An annual report is typically . . . When you're registering to do business in a state, typically the first step in registering to do business is registering with the secretary of state. Once your business has registered with the secretary of state, you're going to be required to complete some sort of annual report filing each year to maintain your compliance, and that is a state level filing.

For business licenses, there are all types of different licensing authorities. These are typically federal, state, county, city level filings.

For annual reports there's 50 states, D.C., and the U.S. territories. For business licenses, there's over 160,000 different licensing jurisdictions. Annual reports are filed with the secretary of state. There are many different kinds of licensing authorities. Some examples of them are the department of health, department of insurance, City of Newark. Depending on what type of business your entity is conducting, they could be required to have multiple different kinds of business licenses.

One thing to also note that in some states, such as Florida, state licensing authorities will review your annual report and your officers and directors on file with the secretary of state to make sure that your officers on the business license are on record with the secretary of state. This is very common with liquor licenses.

So what are some changes that we can expect throughout the remainder of 2023 as far as annual report filing? There will most likely be more legislation changes. An example of that is Pennsylvania. Pennsylvania is moving from a decennial filing, which needs to be filed every 10 years, to they're now going to require all business entities to file an annual report. That'll go into effect January 1, 2024.

We will probably see some changes in how states send their filing reminders or notifications. When I first started with CSC, annual reports were still a very paper, manual filing process. Within the last several years, a lot of the states have moved from paper to online. With that change, a lot of states are now no longer sending out mailers for reminders. They're sticking with either email communication, or they're just posting the due date on their website and they're not sending any additional communication at all. All the Florida annual reports are due May 1st. All the Georgia annual reports are due April 1st.

We'll probably also see more legal departments streamline their corporate governance by using their registered agent for annual report filings and entity management.

More states will also lean towards accepting alternative signature options. What I mean by that is DocuSign or conformed signatures, PDF signatures. In the recent environment it has been more challenging to have customers obtain wet ink signatures. A lot of people are still working remotely. A lot of people don't have printers at home. So we're probably going to see more states accept the e-signatures and alternative options.

Andrea: I'm excited to shift our discussion to talk about some of the benefits of partnering with CSC for your annual report services. Earlier in our discussion, I mentioned CSC's mission to provide world-class service and offer solutions that integrate the services that we offer along with powerful technology tools. CSC is incredibly unique in that we are not just a service company and not just a software company, but really a pairing of the two.

CSC provides 24/7 access to CSCNavigator, which is the technology platform that complements the services that we complete for our clients. Again, later in our webinar, we'll take a look at a demonstration of the CSCNavigator platform and how the data and documents and information from CSC's registered agent and annual report services will flow automatically into that technology tool.

The Navigator platform is a software as a solution or software as a service platform, where our clients can log in securely and have complete visibility to what I would really describe as their entity portfolio, the names of the companies, entity types, where they're formed and qualified, other critical information like the dates of registration and status updates periodically that are coming directly from the secretary of state databases.

This technology also provides access to what we call a good standing calendar, which Kevin referenced, and that gives you automated visibility in terms of when your annual report filings or other secretaries of state requirements are coming due. Again, we've talked also about the challenges of trying to understand these different due dates when there's just so many rules that can govern when they're actually due. Is it fiscal year-end? Is it entity type plus the state? Is it your anniversary date? With that good standing calendar, all of that complexity is taken away and all of the rules, so to speak, are built into the technology to give you a clear and clean insight as to when these annual filings are coming due. The tracker grid not only tells you the due dates, but serves as a centralized tool to help your team track and organize details, such as who's handling the filings, the status, the notes, comments, payment amounts, check numbers. CSC also maintains all of that data as part of our annual report services for our customers. So we will automate the upkeep and completion of the compliance calendar.

Our clients can also receive notifications in advance of these deadlines so that they can be sure to have adequate notice of the requirements and to stay on top of the filings. Now again, with that said, it's incredibly popular for clients to choose to leave the management of those reports and complexities to CSC since there are so many other responsibilities that you have in running your business. You can rely on CSC to quickly and accurately complete these reports on your organization's behalf.

I mentioned and kind of implied a bit that most notably anytime CSC does a filing for a customer, whether it's the completion of an annual report or even any other actions, such as formation or dissolution, a name change, a DBA registration or renewal, a copy of that filing and the evidence that's received from the state that the filing was completed will flow automatically into the CSCNavigator platform. The documents are uploaded and indexed by entity, and they're stored in the software tool forever so that you and your team can have perpetual access to the filings within the secure and encrypted technology.

There are a lot of great benefits to the CSCNavigator software that we include with registered agent services. It's important to note that CSC also offers an award-winning entity management solution that can provide additional features and capabilities to customers that might want or need more. We have a number of organizations that would say, "I love that I can log in to your Navigator platform and to get that great visibility and transparency into my entity portfolio, but I want to go beyond that." Maybe I want to have custom data tracking and reporting needs, or I want to start tracking directors and officers or members and managers. I want to build robust organizational structure charts. Not only am I interested in having access to the documents that CSC files on my behalf and seeing those evidence documents linked to my entities, but I want more control to be able to manage data, upload my own documents, build my own custom reports.

Within our technology platform that we call CSC Entity Management, these capabilities as well as many other features are made available to our customers. So you can click a button to get visualization around your ownership charts based on your legal structure. You can track and manage directors and officers or members, managers, partners, really any person or entity with any role or capacity. You can create and maintain digital minute books and other documents in an unlimited fashion. The platform supports the creation of an unlimited number of custom data fields, so you can build really complex and customized reports inside of the platform. If there's information that you want to track beyond basic data that CSC manages on your behalf, you absolutely can leverage those capabilities of CSC Entity Management.

All of the data within that platform is completely searchable. It's sortable. It's reportable so that you can generate strategic reports for auditing, tracking, or decision-making.

Also you can enable role-based permissions so that you can choose what any user of the database can or cannot see or access. With unlimited access, meaning we don't charge per user seat license fees or per user costs, you can control, as an administrator, what anybody can or cannot see or access in the Entity Management tool. So you might have users with read-only access. You could have people with edit capabilities to collaborate or participate in the maintenance of the database. You can also mix and match those permissions and give people some visibility where it's required, but maybe restrict or hide entities or data elements or documents where it's a little bit outside of the scope of their responsibilities.

And probably the greatest strength of all, when we talk about our Entity Management platform, is that it's not a standalone database. It's built right on top of the basic platform containing all of the data and documents that CSC manages for you, and all of that incredible, vetted data from CSC as a registered agent or annual report partner really forms the foundation upon which your other data and document management can be built. So many robust functionalities to give you complexities to manage your own information and really take control of the database.

We also have a strategic vision for the direction our Entity Management software is headed. Based on feedback and suggestions that we receive from our clients, we frequently release new features and tools so that we can continue to maintain and support a really cutting-edge database with many robust features available to our customers in that unlimited fashion.

So we've talked now a bit about the CSCNavigator technology that comes along with having CSC as your registered agent. We also talked about CSC's Entity Management platform, which is the upgrade that clients can take advantage of to go beyond some of the basics that we maintain. What we haven't spoken about yet is the benefits of having CSC as a partner to maintain the completion and proactively handle your annual reports for your entities. Kevin, this is what you do day in and day out. Can you please share your expertise and talk to our audience about some of the specifics of CSC's annual report services?

Kevin: Absolutely. So first and foremost, some of the benefits here we have bulleted. When customers onboard with CSC's Annual Report Service, at the beginning of the service, we conduct a complementary audit. This is really a health check for each of your registrations. On the audit, we will determine the current status of the company and the date of the last filed annual report, and we will also identify if there are any reports coming due.

Another good benefit is just the peace of mind knowing that your annual reports are being monitored and filed on time and accurately. We also just, as I mentioned, the compliance calendar tracks all filing deadlines. We prepare your annual reports with the information we're provided with, and we submit all the reports on time to the appropriate jurisdiction.

I just wanted to go over some of the basic processes for the Annual Report Monitoring Service. We do have a few processes in place. So at the beginning of your Annual Report Monitoring Service, we ask each of our customers to complete what is called an annual report questionnaire. This is just an Excel or PDF outline that outlines all entity basics we would need to complete your filing, such as the principal business address, officers, directors, members, managers, business purpose, EIN, and stock information. Those are typically what annual reports ask for.

In certain states, as I had mentioned, some of the states they use them as a survey opportunity, or they'll ask if you have property in the state. Some of them include tax calculations that require asset information. When that is the case, on a monthly basis, CSC compiles an Excel outline, which we call a calendar. We email the calendar to you 60 days ahead of the filing month. The calendar will outline any data points that we need in order to proceed with that filing. So if we're working on your December annual reports, we'll send you an initial email in October with that Excel outline, that outlines all additional data points we need. Once we receive a response to that email, we'll proceed with filing with the jurisdiction. We do send follow-up reminders until the requested information is received. Once the filings are completed, all annual report filings are housed in the CSCNavigator online portal in the Annual Report Filings folder.

I also wanted to touch on the invoice option. For accounts with a limited amount of units, some customers prefer to have their invoices emailed to them as filings are completed. However, with larger portfolios, due to the amount of filings we are completing and the amount of invoices we are generating, we also offer summarized invoicing, where we email you a summarized invoice once a month, at the first week of the month, containing all invoices from the month prior.

Also another thing to note is CSC advances filing fees up to $5,000. So any annual report that is in excess of $5,000, we would require advanced payment. So we would just need to be sent a check or wire. In most cases, the filing fee does not exceed $5,000. However, like I had mentioned earlier, Delaware large corporate filers, some companies they have to pay upwards of $250,000 in franchise tax each year. So in those cases, we would require advanced payment.

But that is really the process, and those are just some of the benefits of utilizing CSC's Annual Report Monitoring Service.

All right. So here are five questions you can ask yourself to evaluate your current process for how your annual reports are being completed. Number one, what assurances do you have that your organization is in good standing and is not at risk for paying penalties? What is the process for transitioning annual report filings when the current person changes roles? What is your backup plan to file a report on time if the state's website goes down on the due date? How are you staying on top of your due dates? How do you manage and keep track of the evidence of your filings? If you're asking yourself any of these questions, why not partner with CSC, a trusted service provider, to take these air reports off your plate?