BRIEFLY SPEAKING: ANNUAL REPORTS BEST PRACTICES
Keeping your client’s entity in compliance is crucial to avoiding penalties, involuntarily termination or revocation, and for maintaining the ability to conduct business. As the majority of the states require an annual report to be filed to remain in good standing, you’ll want to ensure you’re meeting the varying requirements from state-to-state.LEARN MORE
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Join us for this 30-minute webinar to gain a better understanding of annual reports, including:
Business license vs annual report
Filing and reporting deadlines
Examples of information required to file a report
Annual report concepts and consequences of not filing
Joining us today are Paula Washburn, Daria Genovese, and Helena Ledic. Paula is a senior service leader responsible for CSC's Harrisburg office that includes members of the Annual Reports Prep and File team. Paula has been with CSC for 40 years and is currently focused on providing customer service and project-based support for the Annual Reports team, as well as managing CSC Pennsylvania Fulfillment team. Daria is a senior service leader responsible for CSC's Annual Reports Prep and File team and Global Subsidiary Management team. Based in Wilmington, Delaware, Daria has been with CSC for seven years and is responsible for leading a team of service leaders that manage our customers' annual report compliance filings.
Helena is the Associate General Counsel for CSC in the Chicago office. She is a business attorney advising senior management and law firms on strategy, business, legal, and technology matters. And with that, let's welcome Paula, Daria, and Helena.
Helena: Thank you, Annie. And before we get started, let's talk a little bit about CSC first. As we like to say, we're the business behind business. CSC supports more than 10,000 different law firms, and we work with more than 180,000 corporate clients. We provide business and financial services to these customers of ours. We protect more than 65% of the best global brands, including 7 of the top 10 with our DBS services, and we've been named a top workplace for 13 consecutive years. We also provide solutions to more than 3,000 financial market clients. We're headquartered in Delaware, and we've got more than 50 locations worldwide. And, of course, we serve more than 90% of the Fortune 500.
Now, let's talk about our agenda today. Daria and Paula are going to walk us through what an actual annual report is. They're going to tell us a little bit about filing and reporting deadlines and the consequences of not filing your reports. We'll learn a little bit more about the filing requirements themselves, the information that's required. We'll learn about electronic filing. We'll also discuss the really important issue of business licenses versus the annual report. They're also going to talk to us a little bit about the U.S. territories and Canada, and then we'll finish up with a question and answer session at the end. And to get us started off, Daria is going to talk to us about what an annual report actually is.
Daria: Okay. So the majority of jurisdictions require an entity to file a yearly report in order to maintain an active or good standing status. This is usually filed with the secretary of state office or the equivalent within that jurisdiction.
Now, generally, these filings are referred to as annual reports, but jurisdictions do assign a variety of names, which can also change depending upon the entity type. So, for example, California refers to a report as a statement of information. Occupation tax report is the filing name in Nebraska. Nevada refers to the report as an annual list. The report is called a business entity report in Indiana. An annual report and franchise tax payment is required in Delaware, and Arkansas calls the report an annual corporation franchise tax return.
There are several jurisdictions, such as the District of Columbia and New York, that only require a filing every two years. These filings are referred to as biennial reports or two-year reports.
So, as you can see, the names can vary, and they can be deceiving based on the jurisdiction in which you're doing business. Also, one item I want to mention is that, in recent years, we've seen an increase in scam notices being sent by mail. These notices appear to be a legitimate request for payment and often they request updated entity information. As soon as the state becomes aware of this scam, they usually post something on their website alerting the public. So, when in doubt, it's always best to contact the state.
Paula: Okay. Daria covered some of the challenges in the last slide, and I'm going to talk about one of the challenges, which is due dates. Due dates will vary not only by jurisdiction, but by entity type or even whether the entity is a domestic or foreign within that jurisdiction.
Filing deadlines can be based on the anniversary date or anniversary month of registration or the fiscal year end of the entity. Other jurisdictions pick one date per year where all entities must file. For example, Rhode Island has one due date for LLCs and another for for-profit entities. North Dakota bases due dates on entity type and if the entity is a foreign or domestic to the jurisdiction. Massachusetts uses fiscal year end as well as anniversary date depending on the entity type. And then you have other states, such as Florida and Georgia, that set one specific filing date each year.
Not only should you be aware of the filing date due, but also how far in advance you may file the report. Some states have a 30-day, a 60-day, or 90-day window to file. And then you have states, such as New York, in which you can only file during the calendar month that the biennial report is due.
We'd also like to mention that there are a couple of jurisdictions that have initial report requirements. The report, which is essentially the first annual report, must be submitted within a certain time frame following your formation or qualification. Some jurisdictions allow 30 days and others up to 120. It's important to understand these requirements because failure to do so will result in a negative status and/or revocation of your entity.
Daria: So what happens if you miss filing an annual report? Well, if you guessed that it varies by jurisdiction, you're correct. Most jurisdictions charge some type of monetary penalty and/or interest and will dissolve or revoke the entity after a period of time. This results in the need to reinstate or requalify the entity. Some jurisdictions do not charge any penalty while others may charge a minimal penalty. Others charge a high penalty, which can add up quickly if you miss multiple filings within that jurisdiction. For example, the penalty for Florida is $400, which is pretty steep and it's over two and a half times the filing fee. Delaware charges a $200 penalty after the due date with interest per month on the tax due until the penalty and taxes are paid.
Illinois will assess additional late fees for every month the report is late. These fees can go into the thousands depending on the financials stated on the report. We recently filed reports in Illinois for an entity that had three years' worth of reports due. Due to the financials that were stated, the penalty and interest was over $60,000.
Paula: The penalties in Illinois can be pretty high. So we've provided some examples of penalties for not filing a report on time. Paying a penalty is a nuisance at best, but the real issue is the fact that most jurisdictions will change the entity status from a good standing or active status into an inactive status. The duration between the change in status depends on each jurisdiction. But typically, when an entity becomes inactive, you are unable to obtain a good standing certificate, which may be needed for a financial closing or as a supporting document to qualify to do business in another state. A jurisdiction may revoke the entity's authority to conduct business, which may result in losing the rights to the entity's name.
Some states require reinstatement, and others require the entity to requalify. This can be very time-consuming and costly. So, in all of these instances, your ability to conduct business is compromised as you have lost your good standing status in the jurisdiction. There are situations in which you may voluntarily let an entity fall out of good standing, but that really is the exception. Most times you're not aware that an entity is not in good standing until you try to obtain a document from the state for a closing and realize that there's an issue. And it's a problem that can cost you valuable time as well as unexpected fees.
So let's talk about another challenge. What's required to file my annual report? So the exact information necessary to file the report varies even more by jurisdiction than the due date. I'm not sure if you've noticed, but there's definitely a theme that's going on here.
Typically, annual reports require all or some combination of the following: officers and directors or members/managers and their addresses, principal place of business and/or mailing address, the business purpose, financial information, including but not limited to authorized and issued shares, par value, and paid in capital. Some jurisdictions have questions that are unique and specific to that juris.
There are some jurisdictions that require basic information. So Colorado, Minnesota, Oregon, and Georgia all require minimal information, such as the address, officers, and an authorized signer. Delaware and Virginia LLCs only require a payment of tax, and no other information is required.
Paula, do you want to talk a little bit about the financial information that's required in some other jurisdictions that maybe are a little bit more difficult?
Paula: Of course. The tax due for Delaware domestic for-profit entities is calculated by using one of two methods. So based on what is reported, the maximum fee for most entities is $200,000. The state also identifies top tier or tier two entities, which are large corporate filers. The tax due for these entities is $250,000.
In Illinois, they also require financial information. So in addition to the annual report, a cumulative report is required if they change any issued shares or paid in capital is reported.
There are a couple of states that require financial worksheets. Those are Arkansas, Wisconsin, and Wyoming. And then in Nebraska, that state needs to know the value of personal property and real estate. Then we have two states, Alabama and South Carolina, in which the annual report is actually part of the tax return that is filed with the Department of Revenue.
Daria: Let's discuss another challenge — how to file. The majority of states have provisions for online filing for active entities, which does simplify the process. This is another reason to keep your entities in good standing. Online filings are not available in Alabama, South Carolina, and Navajo Nation. As previously mentioned, Alabama and South Carolina reports are filed in conjunction with the tax return.
Now, there are some jurisdictions that impose limitations for online filing. In Hawaii, if a filing has previously been rejected by either traditional or online filing methods, it cannot be resubmitted as an online filing. In Nevada, you cannot file online if you're claiming a business license exemption. In Wyoming, you cannot file online if the license tax due is more than $500. Some jurisdictions even require a PIN in order to file online. An example of two states is North Dakota and Texas.
There are some jurisdictions that no longer have provisions to file a paper form for most entities. Examples of these include Delaware, Florida, and Colorado.
Most jurisdictions have provisions to file an amended report or a certificate of correction if the data reported is incorrect. However, you may not be able to complete this online.
A lot of this is pretty confusing, and this is where CSC can jump in and help. We maintain all of the jurisdiction filing requirements for annual reports, including what can be filed online, how to amend reports, and what signatures are required. And we monitor the jurisdiction for any changes to the filing requirements as well.
Paula: From time to time, we receive questions regarding the difference between annual reports and business licenses. So it's good to remember that annual reports are required for entities that are registered with the secretary of state or its equivalent. Filing an annual report in a jurisdiction that requires one will keep that entity in good standing.
Business licenses, on the other hand, are based on business and industry. Almost all companies must maintain some type of license.
While annual reports are filed at the state level, business licenses may be required at the federal, the state, the county, or the municipal level. Some examples include Department of Insurance, Department of Health, and even at the city level, like for example, the City of Newark.
Although an entity may only have to file one annual report with the secretary of state, it may be required to have multiple licenses from different licensing authorities. And again, it depends on the business and industry. So some examples of business licenses would be, you know, a business tax certificate with the City of Los Angeles for each business location that you might have or a health permit from the Louisiana Department of Health and Hospitals.
Most states will require separate filings for annual reports and business licenses, but there is one exception, and that's Nevada. In Nevada, when filing your business license, it's done in conjunction with your annual list and it's a filing requirement unless the entity is exempt from filing a business license.
Daria: As January starts the peak filing season for annual reports, let's talk a little bit about some of the larger volume filing states. Delaware, California, Florida, Illinois, New Jersey, and Georgia are few of the highest volume states for filing annual reports. As you can see on the chart, there really is no consistency in the due date. They vary by entity type, whether the entity is domestic or foreign to the jurisdiction, or by the anniversary date.
Paula: The last part of our presentation covers filing in the U.S. territories and Canada. Just as the fees, penalties, and requirements vary for the secretary of state offices within the U.S., the same is true for the United States territories and Canada. Puerto Rico reports are due on April 15th and may be filed online. Filing late results in a high penalty. Guam does not permit extensions, and the jurisdiction does not mail forms of reminders. USVI has mandatory online filing.
In each territory and province in Canada, they have their own filing requirements. For example, the Ontario annual report is an exhibit to the corporation income tax form. And just as within the United States penalties vary greatly, they vary greatly as well in Canada if the reports are not filed by the due dates. And then you have, you know, grace periods, right? So Alberta grants a grace period with no financial penalties within that grace period, while Nova Scotia actually doubles the filing fee for any reports filed late. So as with filings in the United States, it's really crucial that you understand the requirements in these jurisdictions as well.
CSC is really equipped to help you with those filing requirements and filing in the U.S. territories and Canada, as well as within any jurisdiction in the United States.