Annual Reports: Best Practices to Stay in Good Standing

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

Joining us today are David Jefferis and Kevin Eissner. David is the Senior Director of Product Management for Global Compliance and Governance Services at CSC in the Wilmington, Delaware headquarters. David is responsible for driving the strategic direction of CSC's compliance solutions. With CSC for over 15 years, he has significant experience providing training, implementation, and consolidative services to clients of 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 David and Kevin.

David: Thank you, Caitlin. I know that Kevin and I are just so excited to be here today and really grateful for the audience that's joining us to learn about annual reports and some of the capabilities that CSC can bring to the table. So in looking at the list of folks that registered for today's webinar, I do see a lot of names that I recognize of organizations that currently work with CSC. But with that said, I also see some names and some company names that are unfamiliar to me. So I think there are some organizations that do not currently partner with CSC that are a part of our audience today. So I thought it would make sense to take a moment to talk just a little bit about who CSC is as an organization for those that may not be familiar.

And certainly, you can see some of the stats here on the side, but I want to give a little bit more to the story about who CSC is as an organization. CSC has over 3,000 employees in 14 countries and 46 locations. So we are very much a global organization. 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. Now, again, we're going to talk about annual reports quite a bit today, but certainly there is a relationship there with registered agent services, which we'll discuss. And then you can see on the slide that over 90% of the Fortune 500 utilize CSC for at least one service.

And then we're also incredibly proud to say that, as it relates to Entity Management, which is one of our software solutions which we'll touch on a little bit today, over 20% of the Fortune 500 utilize our Entity Management technology.

And then really kind of as a mission statement for our part of the organization, really what we want to do is serve as an indispensable compliance partner to our customers by providing solutions that integrate with world-class service, compelling technology, and present our customers with actionable data. And I think we'll really see that come to the forefront as we get further into today's content.

So now that we've had a moment to talk a bit about CSC as an organization, let's talk about what we're going to talk about. So let's review today's agenda in terms of what we're going to focus on in today's webinar. So we'll start with the basics. You know, what is an annual report? We want to make sure that everyone is on the same page as we get kind of deeper into some of this content. We'll talk about kind of the filing and reporting deadlines and what drives some of those things. We'll talk about some of the challenges that we commonly hear from our organizations when it comes to, you know, maintaining their good standing compliance and handling annual reports. We'll talk about some of the really problematic challenges and consequences, I should say, of not filing reports in a timely fashion. There's all sorts of headaches that occur when that's the case.

We'll talk a little bit about the differences between business licenses and annual reports. There are some critical distinctions there. We'll talk about kind of what we're anticipating as we get into next year. And then, really, we want to talk a bit about some of the benefits of partnering with CSC for handling annual reports and for using CSC for a number of our compliance services. And then, really, kind of wrapping up with we'll do a bit of a demo of our technology, and then we'll have some questions that you can kind of ask yourself to kind of 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 face your organization.

So let's really start at the beginning, which is making sure that we're all on the same page with what is an annual report when we use that term. So I'm going to bring Kevin, who's a real expert, in the conversation to kind of guide us through the terminology here and kind of define, you know, what do we mean when we talk about annual reports.

Kevin: Thank you, David. Happy to share some detail about the annual report filing. So first and foremost, what is an annual report? An annual report is a required filing that each secretary of state office has. The basis of this filing is to keep your entity in compliance. Each secretary of state has their own variation. These filings typically ask for basic company information, such as your principal business address, your officers and directors, members, and managers. Some states want to know what kind of business you are conducting. They call that the business purpose. Other states can use the annual report as a survey opportunity. West Virginia will ask for your number of employees. New Jersey can ask for your workers' compensation information.

Also, the filing fees for an annual report vary greatly from jurisdiction to jurisdiction. Fees can be as low as $10, such as in Colorado, and then up to $650 in Nevada. For large corporate filers in Delaware, their franchise tax can be up to $250,000 annually.

Below are some examples of different names for annual reports. For example, California is the statement of information, where you just report entity basics, such as the officers and directors. The occupational tax report is related to Nebraska, where they calculate a fee based on your personal and real property in the state. The annual list in Nevada is you just report your officers and directors. And the franchise tax report is related to Delaware, where your fee is calculated based off your authorized shares and stock.

Okay. So when is my annual report due? The due dates in each jurisdiction vary. Some states, when you qualify, you'll list your fiscal year-end on the initial filing. For example, in Massachusetts and Tennessee, for Massachusetts, if you have a December fiscal year-end, your annual report is due three and a half months after that fiscal year-end. In Tennessee, your annual report is due three months after your fiscal year-end. Some states, your annual report is due in the same month that you qualify, so your anniversary month. If you qualified in September of 2023, your first annual report will be due by September 1, 2024. Other states, like Arizona, your annual report is due on the anniversary date. So your annual report will be due on the same date you qualified every year. So if you qualified on January 25th, 2022, your first report will be due on January 25th, 2023, and so on.

There are rare occasions where an annual date is chosen by the jurisdiction. This typically applies to older companies. For example, in Arizona, if you qualified prior to 1997, the state will just assign you a due date, and that's when you have to file your annual report each year.

So what are some challenges with managing your annual report filings? Probably the biggest struggle is just staying on top of the due dates. As I mentioned in my last slide, the due dates vary from jurisdiction to jurisdiction.

It can also be challenging to just the knowledge of all the filing requirements as some filings can be completed online, some are on paper. Where do I send my filing? CSC's Compliance Calendar tool calendars all due dates for the filings for our customers. We also have a lot of knowledge on how and where these filings can be completed.

It can also be a handful just to manage all of the relevant data you need to complete your annual report filing, like: Where do I keep all my officer and director information? Where is my stock information?

Also, for customers with large portfolios, with many business entities registered across various jurisdictions, it can be very time-consuming to figure out how to complete all these filings.

David: So, Kevin, we talked a bit about some of the challenges with handling annual reports, right, where they're, you know, due different times of year. There's all sorts of different logic in terms of what's driving those due dates and trying to stay on top of it. But I guess at the end of the day, why does this matter so much? What are the implications of failing to maintain your compliance by filing your annual reports in a timely fashion? Can you speak to some of these problems that folks can run into?

Kevin: Absolutely. So first and foremost, when you miss an annual report filing date, you are going to fall out of good standing with the secretary of state office. So what that means is you are no longer in compliance. So first you fall out of good standing, and then each state has their own timeline for the revocation process.

So once you are revoked by the state, you have lost your right to conduct business in the state, which can cause many problems. For companies that are revoked and not in good standing, you'll have inability to bring a lawsuit. You'll no longer be able to conduct business in the state. A main thing is you'll also not be able to obtain a good standing certificate, which is a document that is needed for many corporate functions. Most of the time when you are trying to open a bank account for your company, the bank is going to want to see that your company is in good standing. If you're not in good standing, you're not going to be able to provide that good standing certificate.

Also, when you do go to reinstate your business, your company is going to be subject to penalties and interests, which can be pretty significant in some cases, especially in Delaware and Illinois. Also, when you are revoked, you're going to lose the exclusive rights to your name, which can be very significant in some cases as well.

David: So one of the questions that folks maybe are wondering is, you know, "Well, what about my international companies," if you're one of the folks in the audience that deals with a portfolio of entities that are both here in the States and in other parts of the world. And I certainly did mention at the very outset that CSC is a global organization, and we do offer global services.

But with that said, when we talk about annual reports, we're most often sort of focusing on, you know, secretary of state level filings and, again, equivalent filings that impact the good standing status of companies here in the U.S. But certainly, annual reports is a concept that does extend beyond, you know, our borders here in the U.S.

So kind of the first thing to talk about is, you know, U.S. territories, and you can see a number of them listed here. There really are the equivalent of good standing annual report filings in those jurisdictions.

Once you start to extend beyond the U.S. and U.S. territories, things start to change up a little bit. Canada is an interesting one. I'll do my best to kind of describe this. It's a little challenging to try to articulate in a concise manner. But if you have an entity that is, let's say, formed in the U.S., I'll start with that example, and it's also qualified in a Canadian province, that's known as an extra-provincial registration. There would be the requirements to file an annual report in that province. If you have an entity that's, say, formed in one province in Canada but qualified in other provinces, again those are so-called extra-provincial registrations. Again, you're going to need to do annual report filings in those other provinces.

In terms of that second example, that I'll call it sort of your domicile jurisdiction, that province where the entity is formed, it really kind of starts to go beyond just an annual report. Now you're starting to get into corporate secretarial needs that go beyond just simply filing an annual report. And so that's kind of getting into the worldwide category, and so things really get more complicated than just annual reports. There's often things like annual general meetings and filing of financial statements. And so not to say things are simple here in the States, but it really starts to kind of get more and more involved and there's more scrutiny and things get more complicated as you start to get outside of the U.S. with maintaining your good standing compliance.

Kevin: So I know you're probably thinking, "What about my business license?" So it's important to explain the difference between the two. Business licenses and annual reports are two very separate filing requirements.

Annual reports, you want to think of it as state level. Typically, your first step in doing business in a state is registering with the secretary of state. When you file an annual report, oftentimes the licensing agencies may refer back to it to see if the individuals on the annual report match who is listed on the license. This is common with liquor licenses, and also the State of Florida does this a lot.

Business licenses are more . . . they can be state, federal, county, and city level. These can be more of local jurisdictions. There's over 160,000 jurisdictions that business license can be filed in, whereas an annual report is limited to the secretary of state offices, the 50 states, D.C., and the territories. Examples of licensing authorities are the Department of Health, Department of Insurance, city level, like the City of Newark, City of Wilmington. Depending on the nature of the business, one single company could have to apply for multiple kinds of licenses.

All right. So what can we expect in the 2023 annual report filing season? There will most likely be legislation changes. States are constantly adding new requirements to their filings. For example, California, effective January 1, 2022, they added a question asking each company if any of their officers and directors had an outstanding final judgment with the California Division of Labor.

States are also routinely changing their process for notifications. When I first started with CSC five years ago, the annual reports were very still a paper filing process. The reminders were sent mostly on paper to the registered agent. However, in the past several years, we have seen the move to online filings.

So that brings us into our next point. A lot of jurisdictions are no longer mailing out paper filings. They're just sending electronic notifications. A lot of times the electronic email reminders are emailed to whoever filed the report in the prior year.

Also, more legal departments will probably streamline their annual report compliance with their registered agent, being that if CSC is acting as your registered agent, the next step, we can manage your annual report. So we already have all the information. We already have all your registration information. We already have your compliance calendar with your annual report due dates.

More states will accept alternative signature options. It's becoming more and more challenging to obtain original wet ink signatures on documents as people are still working remotely.

And those are just some of what we can expect in the 2023 season.

David: So let's talk a little bit about some of the benefits of partnering with CSC, and really it all starts with CSC acting as your registered agent. That's sort of the core service that brings everything together and from which other services can be kind of layered on top.

And so, you know, one of the benefits is the technology that we bring to the table. And so you'll see in our demo coming up in just a little bit, a live demonstration of what we call CSCNavigator.

And when CSC is acting as your registered agent, and this is something that Kevin alluded to just a moment ago, there's a lot of information that flows automatically into our platform, the names of these companies, where they're formed and qualified, dates of authorization, charter IDs, their entity types, statuses at the secretary of state level that we update routinely and notify you if those change.

There's the Good Standing Calendar that we've alluded to several times that gives you complete insight into what's coming due as far as your annual report obligations. We'll talk a little bit more about how the technology actually does the math in terms of understanding when those filings are coming due.

Also, critically, anytime you engage CSC for a filing, whether you have us form a new entity, maybe dissolve a company, handle an annual report, whatever that transactional filing might be, the data that results from that filing and the documents are flowing automatically into our platform. So just to create kind of a very simple example, the formation, if you said, "CSC, go form this new subsidiary, I want you to be my registered agent," that company would dynamically appear in the system. In this example, that formation document would automatically be linked to the company in real time. So there's this complete integration marriage, if you will, between the services that we offer through being a registered agent and a filing partner and the technology platform that we'll see in just a little bit.

Also, in terms of staying on top of your compliance, I mentioned that if something changes, we'll send notifications via email. But then certainly if you're handling your annual reports in-house, if that's something that you want to keep within your organization, not only can you see what's coming due in the Good Standing Calendar, but you can also receive reminders in advance of the filing. So whether it's a month out, two months, or as many as three months in advance, you can have emails that are coming right to your inbox, keeping you apprised of, again, these annual filing obligations that are necessary to maintain your critical good standing compliance.

So you heard me talk about CSCNavigator, and, again, that is the technology platform that all CSC registered agent customers have access to, where, again, there's this wealth of information, data and documents about your entities, where they're doing business, when their filings are coming due, etc. But certainly we work with a lot of organizations that want to go beyond that.

And so, at the very outset of the presentation, I mentioned that we're really proud to say that over 20% of the Fortune 500 utilize our entity management software, which we call CSC Entity Management. So, you know, what is that? How is that different than the Navigator platform?

Really, it's just turning on more features in CSCNavigator. And so you'll see some of those things that are referenced here. You have the ability to track directors and officers. You can track ownership records, create graphical org charts. You can start uploading electronic documents which often are in the form of electronic minute books within the technology. You can create your own fields. You can design your own reports. It's just sort of this explosion of capabilities in terms of what you can do, but critically, you're not doing it in a vacuum. You're building on top of that core, vetted information that we maintain as your registered agent.

And so one of the things that I think Kevin might talk about a little bit later on is one of the nice relationships that we'll sometimes have is a client that uses our annual report service, which I'll talk about in just a moment, and also uses our entity management technology. So I'll get to that in a moment, but it's really an award-winning, highly configurable platform where folks can, again, go beyond just the basics of what we capture as a registered agent and start, in a very interactive fashion, building on top of that data, creating charts, tracking directors and officers, uploading documents in a very secure, collaborative solution.

So now we've talked a bit about technology with the Navigator platform. We talked a little bit about how Entity Management can expand upon that. Let's talk about CSC's annual report service and some of the benefits of utilizing that service with CSC. I think honestly, even though you've got four bullet points and a lot of stuff worth kind of breaking down, I think the biggest thing could be just the idea of, you know, get this off of my plate, right? We talked about some of the challenges in terms of the time commitment, understanding what's required and how and where to file. So for a lot of organizations, especially in today's day and age, where the legal departments are expected to do more with your resources, it's just an opportunity to say, "CSC, I want to hand this over to you. You're a trusted partner. I know that you're experts in this. Let me focus on other things within my legal department." But with that said, let's actually do kind of break some of these things down a little bit.

So when CSC is first engaged to take on the preparation and filing of a customer's annual reports, we're going to do an audit just to understand, again, where is everything in terms of being in compliance. Are there entities that are maybe revoked or dormant or delinquent? So we're going to kind of get that health check, so to speak, upfront as a part of that service. And then, in an ongoing fashion, we know that we're going to be doing the necessary filings to keep these companies in good standing compliance on an ongoing basis.

Really, that second bullet point is that peace of mind, again, working with the team that are experts where this is what they do all day, every day. They understand the nuances from one jurisdiction to another. And then really just having, again, that great peace of mind that CSC is going to maintain and really ensure that you're going to maintain your good standing compliance.

And then, there's also some things around, you know, invoice options. And so there are some customers that prefer to be invoiced really by filing. Other folks, if there's a high volume of filings, might prefer to get a summarized monthly invoice. So there's certainly a lot of flexibility from that standpoint.

But, Kevin, to bring you back into conversation because this is what you do with some of our largest customers here at CSC, can you talk just a little bit about kind of the mechanics of the process? So let's say someone is using CSC as a registered agent, where we have a lot of the information that we need for the filings, they bring us on board with the annual reports. How do you interact with our customers? You know, how far in advance are you reaching out in terms of gathering some information we might need? Can you just talk a little about kind of the day-to-day of working with our customers with the service?

Kevin: Absolutely, David. So, first and foremost, CSC proactively engages the customer. We really form a partnership with the customer to ensure we're completing all filings timely, all filings accurately. We really just want to make it seamless. So as CSC files these reports throughout the year, we do have a process in place. Each month, CSC puts together what we call a calendar. It's an Excel spreadsheet that outlines all of the information CSC needs to move forward with the filing.

At the beginning of your annual report service, you are asked to provide an annual report questionnaire to CSC that outlines all the entity basics we would need to complete a filing on your behalf, like, I mentioned previously, officers, directors, business purpose, EIN numbers, stock information. However, for clients that take advantage of CSC's Entity Management platform, if the customer also uses Entity Management, the Annual Reports team will access your Entity Management profile and retrieve all entity data from there. So, really, the Entity Management and annual report services, they work together hand-in-hand.

So, as I said, we put together the monthly calendar that outlines everything we would need outside of the entity basics. As I mentioned previously, some states ask for specific information that we can't just automatically answer on your behalf. We would need some input. Some filings require asset information, employee count, workers' compensation. When that is the case, we put together the spreadsheet. We email it to you 60 days ahead of the filing month. So, for your December filings, we would send you an email in October, and then we would follow up with you until the requested information is received.

And then, CSC advances all disbursements on behalf of our clients up to $5,000. Anything in excess of that, we would need just payment in advance, either via check or wire. However, most filings do not go above $5,000. But if that is the case, we just require prepayment.

For clients with larger portfolios, the summarized billing preference is preferred just because of the sheer volume of invoices can be a lot to just get emailed to you individually. So a lot of customers do prefer to use the summarized billing function.

David: Excellent. Yeah, so really what I'm hearing is there's this collaboration that's occurring. So if there's information at our fingertips in Entity Management, we use that. If the client is just using our basic registered agent service, then we're going to reach out, like you said, in advance, gather the data, prepare, and file. So it is a very kind of white-glove service where we're making sure that we're ensuring that organization is compliant. I appreciate, Kevin, all of that insight.

Kevin: Absolutely. So there are just a few questions to ask yourself to evaluate your current annual report process. What assurances do you have that your organization is in good standing and not at risk of being revoked and paying penalties? What is the process for transitioning annual report filings when the current person changes roles? What is your back-up 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 all the filing copies for all these annual reports? If you are asking yourself any of these questions, why not partner with an expert like CSC to take this off your plate and maintain your filing for you?